Run the Numbers Before You Fund: A $100,000 Loan Exercise for Private Lenders

November 03, 2026•6 min read

On this week's Be The Bank call we did something different. Instead of teaching a framework, I put a loan request on the screen and asked the room one question: fund, pass, or ask for more information?

Here is the request. A buyer wants to purchase a rental property for $150,000. They ask for a $100,000 loan in first position and will put in $50,000 plus closing costs. The term is 12 months, and the plan for repayment is to refinance with a bank. They tell you they own six rentals.

Every person on the call voted for more information. That was the right vote. What matters is what you ask for next, and what the math says before anyone answers.

The Math Most Lenders Skip

Start with the exit. The plan is a bank refinance at 12 months. A bank will not lend against the price the buyer paid. It lends against a percentage of appraised value. Say that bank lends 65 percent of a $140,000 value. That is $91,000.

Your loan is $100,000. The refinance leaves a $9,000 hole, and the borrower has to fill it with cash they may no longer have after the down payment, the closing costs, and the renovation. Twelve months feels far away on the day you fund. On the day it arrives, a $9,000 gap is a real problem with a real deadline.

I asked the room how many private lenders run this calculation before they fund. The honest answer from the group was that seasoned lenders do and newer, informal lenders often do not. Especially when the borrower is a friend, the conversation becomes "I trust you" and the loan-to-value math never gets done. Trust is how the conversation starts. It cannot be the underwriting.

If you want a place to write down your own criteria before the next request lands, Bank Box inside the Alchemist Nation dashboard is built for exactly that.

When the Appraisal Looks Right and Is Wrong

I shared a situation from outside the exercise. A group of private lenders I have been helping had funded a large set of renovation loans. Each file had an appraisal. Each file had underwriting. Everything that traditionally says "go" said go.

Then the refinances began, and the new appraisals came back far below the numbers the lenders had been shown. The original values had come from appraisals the borrower supplied. When the people involved in a sale tell an appraiser what number they expect, the report has a way of arriving near that number.

My conclusion was not that appraisals are useless. It was that one source of value is never enough. A real estate agent who is thinking about taking the listing has a reason to name the price that actually sells, not the price the owner hopes to hear. Talk to three agents, not one, and do it before you fund. An independent appraisal ordered by the lender costs a few hundred dollars a property. Compare that to what it costs to find out two years later.

This also connects to something I say often: know your market so well that you notice when it shifts. Some cities have been drifting downward for years. A lender who stays in markets they understand can spot that. A lender in an unfamiliar market finds out from the appraisal. For a fuller look at how to test the asset before the wire, see how to evaluate a private lending deal.

Character Is What Is Left

Collateral supports recovery. It does not guarantee it. In the situation I described, first positions on some of those properties were shortfalls, and the remaining protection for later lenders was a personal guarantee. What stands behind that guarantee is one person showing up, doing the work, and wanting to pay.

I said it plainly to the room: the character of your borrower is really all you have to depend on. Assets, appraisals, and portfolio performance describe current conditions. Character is what you rely on when conditions change.

Two other lessons came out of the same story. First, find out who else has lent to this operator. In that pool, one small creditor pursuing a claim pushed a borrower toward bankruptcy, and a bankruptcy freezes everyone. One lender's anger cost the whole group. Second, look at the operator's life, not only the operator's file. Who runs the business if something happens to this person? Is there a succession plan, a partner, a backup? The counterparty test is the discipline for this, and it applies after the loan closes as much as before.

A Refinance Is Not an Exit Plan

Back to the $100,000 loan. The borrower's plan was to refinance. Almost every operator I know, large and small, has experienced refinance delays this year, me included. A plan that depends on one bank saying yes on a specific date is a hope.

So we always have two exit strategies. A sale has to be one of them. A third option I have been exploring is the swap. Recently I traded an equity position I did not want for a debt position another operator held in a deal, and each of us ended up holding what we were willing to manage. We traded paper. It is worth asking whether a performing note can be sold or exchanged if you need the capital back, and whether you could do the same on the other side.

Funding also starts a monitoring job. Someone has to notice a missed payment, expired insurance, or unpaid taxes. If you are not tracking the file after closing, you are not a lender yet. You are a person who sent money.

The Takeaway

Take one loan request you have seen, real or invented. Write four numbers on one page: the amount, the value you can verify from at least two sources, what a bank would lend against it, and the difference between the two. Then write the second exit plan next to the first.

If the page shows a gap, you have found your next question before the borrower has found their next problem.

None of this guarantees an outcome. Loans can default, appraisals can miss, and recovery can be slow and costly. Alchemist Nation does not represent any rate, return, or result from any loan. This is general education, not legal, tax, or financial advice. Get qualified review for your situation and your state.

The point of the exercise was never the answer to the hypothetical. It was practicing the questions out loud until they come before the wire. If you want the broader picture of where this discipline fits, five questions a lender answers before funding is a good companion to this one.