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In a Nutshell: Banks lend other people’s money in a highly regulated, non-asset-backed environment predicated on creditworthiness and the borrower’s financial stability. Those things are relevant in secured or hard money lending, but commercial and residential real-estate backing circumvents traditional banking constraints and enables private lenders to do more deals. Source Capital has leveraged equity to close more than $550 million in loans since 2007. In California, Arizona, Minnesota, Colorado, and Texas, results-oriented Source Capital helps investors realize the potential of their assets.
Ultimately, banks loan money without anything more than a feeling to back it up: a sense of the borrower’s ability to repay based on benchmarks of creditworthiness and financial stability.
That makes lending decision-making a process with complex documentation and opaque underwriting. Banks strive to satisfy all stakeholders and keep society moving forward in a dynamic economy and a constantly changing regulatory environment. But it isn’t easy, and not everyone gets what they want.
There are times when the model holds people back unnecessarily. In the summer of 2024, we were in one of those times when we spoke with Sacha Ferrandi, Founding Partner of Source Capital Funding, a private lender founded in 2007 and operating in California, Arizona, Minnesota, Colorado, and Texas.
As high interest, high prices, and low inventory have stymied home sales after the COVID-19 pandemic, Source Capital has stepped in to help homeowners leverage some of their locked-in equity.
Where traditional lenders may fail to meet the credit needs of entrepreneurs looking to fuel real estate investment and business expansion that produces positive results for everyone, lenders like Source Capital allow people to make the most of their opportunities.
That’s not to say Ferrandi’s team plays fast and loose with Source Capital’s funds. Ferrandi started the business with about $50,000 and has awarded over $550 million in loans using internal and investor assets. He’s doing something right.
That something is prioritizing open communication and customer service through education. Ferrandi and Source Capital demonstrate that even though some private or hard money lenders do business as if they inhabited the Wild West, there’s plenty of room for experienced, deliberative private lenders.
Source Capital has the ratings to prove it: an A+ rating from the Better Business Bureau and a 4.9 Google score based on about 330 reviews as of press time.
“It’s not rocket science: Hard money lenders are looking for equity in real estate, not at credit scores and financials like a bank would,” Ferrandi said. “It just goes to show that if you do what you say and say what you do, you can be successful.”
Results-Oriented Private Lending Since 2007
Ferrandi should know: Starting Source Capital in 2007 meant getting the business up and running during the Great Recession of 2007-08, the worst financial crisis since the Great Depression.
It taught Ferrandi the value of the private lending model after banks lent the housing economy into bubble status. As the market depreciated, foreclosures dissolved equity into nothing.
“Every private lender is different, but you want to leave yourself a cushion to protect against the asset depreciating or the borrower going south,” Ferrandi said. “A good underwriter’s job is to minimize the risk while also giving the client as good a deal as possible to earn the business in a way that’s fair to both of us.”
It may not be rocket science, but Ferrandi characterized the need as more acute now than ever, with many homeowners contacting Source Capital to leverage their equity through a second mortgage. Unfortunately, second mortgages bring more inherent risk.
“When you go to the DMV, do you want to be first in line or second?” Ferrandi said. “The lending parameters have to be commensurate with the risk.”
That said, Source Capital prides itself on having some of the most favorable terms in the industry. Loan programs leveraging residential and commercial assets start with rates as low as 8.99% and terms up to 12 to 24 months.
Source Capital’s loan-to-value ratio is a relatively modest 65%, establishing its reputation as a prudent lender. It also rewards the most responsible borrowers by charging no prepayment penalties.
Applying online takes about 10 minutes, and a written loan offer is usually forthcoming within 24 hours. Source Capital facilitates loans through escrow and wires funds to borrowers within days, not weeks, as is sometimes expected in this industry.
It adds up to a record as one of the most borrower-friendly private lenders in the business. About 40% of Source Capital’s clients would have qualified for a bank loan but chose to work with it as a private lender because of its speed and service. Communication is the key to getting there.
“Now more than ever, there’s a huge need for secondary financing from lenders like us,” Ferrandi said. “We help people get from point A to point B.”
Helping Borrowers Achieve Goals Through Education
From his experiences during the Great Recession, Ferrandi remembers that much of the housing crisis stemmed from borrowers’ lack of understanding of what they were getting into.
Source Capital strives for transparency throughout the lending process, working toward ongoing productive client relationships. Private loans backed by real estate assets are short-term for a reason: to minimize risk.
Besides, Ferrandi said, borrowers don’t want to be obligated to a private lender for 30 years — it would be foolish.
“Why would you pay 10% to me when you could be at a bank paying less?” he said.
Client education often begins with those fundamentals. By law, private lending fits models with explicit business purposes: single-family and multidwelling rental units, commercial real estate investment, and business capital infusion, among others.
“People get into trouble when they don’t realize that or are maybe unrealistic with their expectations,” Ferrandi said. “Because we’re in such a niche business, we try to educate our clients so they know what they’re getting into.”
Unfortunately, Ferrandi said, not everybody in private lending operates that way. But he argues that transparency and the education that goes along with it make for good business.
It’s a natural outgrowth of private lending’s greater sense of ownership over the funds it lends compared with that of a bank’s, which lends deposits. Conversations and documentation ensure both parties share all information regarding loan terms, prospects, and goals.
Credit scores, debt-to-income ratios, and other bank metrics fade into the background in a private money deal. Most clients come to Source Capital for speed and flexibility. Quick delivery is an outcome of viewing credit, financials, employment gaps, and other personal finance details differently from banks.
Ferrandi said Source Capital’s performance on review sites attests to the value clients place on his emphasis on communication. That’s handy in a business with a stereotypical Wild West mentality, such as private lending.
“I’m lending my investor capital to you, so I want to ensure we’re on the same page,” Ferrandi said. “If something goes south, we’ve already discussed it and understood the ramifications.”
Committed to Client Satisfaction and Transparency
Ferrandi is proud that Source Capital is among the top-rated hard money lenders on the web.
“They’re legitimate reviews from legitimate clients,” he said. “We get those reviews not only because we deliver but because we help our clients feel comfortable with the deals they make with us.”
Ferrandi considers that part of his responsibility as a practitioner in an industry with a mythic reputation for breaking legs when borrowers don’t pay.
All kidding aside, it says something about trust when borrowers have something nice to say about a company loaning them money. But Source Capital can turn a potentially stressful dealmaking experience into something worth repeating.
“Yeah, we’re going to walk you through it,” Ferrandi said. “My wife tells me I talk too much on the phone, and I tell her I need to make sure they get it. We’re throwing a lot of information at them all at once.”
Ferrandi operates on the principle that the human brain retains about 10% of what it hears. That means a lot of repetition in messaging from Source Capital.
It also means informing clients about details they discover during the due diligence process that may not directly relate to the deal. For example, the team may notify clients that their insurance isn’t enough to cover total home destruction or that they may not be aware of old easements on their titles.
That means Score Capital doesn’t just educate about hard money but about what’s happening with the client’s property. As Ferrandi sees it, Source Capital’s job is to underwrite the loan and, during that process, be as transparent with the client as possible to let them know what they may not know.
Ferrandi said treating clients that way produces positive results regardless of the business. Ferrandi and Source Capital keep those values in mind as they prepare for the next unpredictable economic event.
“Clients can tell when they’re dealing with someone who takes the time to earn the business and explain things clearly along the way,” he said.