How To Lend Safer

A question I encounter frequently is “how do I lend safely”? You can’t. There is always the possibility for loss, but you can lend SAFER and improve the outcome by asking yourself such questions as “does this deal sound like a good idea”, “how am I/my money protected”, “can I/my business survive a complete loss”. While there are no guarantees a deal will not go bad (there is always some risk), here are some suggestions for good practices;

• Analyze the deal; the more solid the numbers, the lower the risk of something going wrong, and the higher the probability for a profitable outcome for the borrower and you.

• Interview the borrower; who are you doing business with, what is their experience, why are they borrowing, why are they borrowing from you.

• Have the correct documents; a promissory note, a security document (mortgage or deed, depending on the state), and a personal guarantee.

• Insure the property; be named a mortgagee on the home insurance policy (in case something happens to the property physically), and added to the title insurance (in case there are any issues with property ownership).

• Build the right team; a mentor/teacher to educate and guide you, an attorney to review all the documents and represent you in the transaction, a title/closing agent to handle the document signing, funds disbursement, and transaction recording.