7 Common Private Lending Pitfalls Brokers Must Avoid in 2025

If you've been in private lending for even a short time, you've probably seen how quickly deals can go wrong—from a borrower who overpromises and underdelivers to a lender who goes silent after submission, the most common setbacks are due to missed details, poor deal structuring, or relying too heavily on relationships rather than solid documentation.

RCN Capital works with brokers who have personally encountered these frustrations. That's why our lending platform is designed for speed, structure, and broker protection, providing you with a direct lending partner who will help your business at every stage. RCN Capital's in-house underwriting, quick approvals, and open communication help you avoid the most common private loan issues.

Let’s review the most common broker-originated loan errors and how using RCN Capital assists you in avoiding these risks, protecting your pay, and establishing long-term success in the real estate lending landscape.

1. Over‑Reliance on Relationships over Underwriting

Mistake: Trusting borrower relationships instead of objective deal analysis

Most brokers rely on rapport with investors to recommend private loans. Strong relationships are important, but they cannot be a substitute for disciplined underwriting. Relying on who you know alone results in unsecured notes, inadequate collateral, and overlooked red flags.

How to avoid it:

• Emphasize property value: Underwrite each deal based on current market comps and after‑repair value (ARV).
• Secure the lien: Always ensure the borrower’s property serves as collateral on funded loans, and there are no previous liens on the property.
• Leverage RCN Capital loan solutions: RCN Capital's in-house underwriters utilize common-sense standards based on the merit of assets, rather than borrower assurances.

2. Inadequate Equity Buffer

Mistake: Funding deals with little or no borrower equity

Providing beginner investors with minimal equity loans subjects brokers and lenders to large losses in the event of a poorly performing project. Transactions without a healthy loan‑to‑value (LTV) cushion provide no margin for market fluctuations or cost overruns.

How to avoid it:

• Set minimum equity requirements: Require at least 25% borrower equity for fix‑and‑flip deals and 20% for rental loans.
• Stress test the exit: Model worst‑case scenarios where ARV drops by 10–15% to confirm sufficient equity remains.
• Use RCN Capital’s program limits: RCN Capital's Fix & Flip program provides up to 75% ARV and 100% of rehabilitation costs, providing strong equity protection.

3. Chasing Unrealistic Returns

Mistake: Pursuing deals with promises of extraordinarily high ROI

Investors will advertise 30% or more returns in 90 days, but these claims often lack substance. Promises of high ROI come with the risk of unsecured notes, hidden fees, or borrower desperation. Brokers who fund these deals with undue haste risk disappointing customers and compromising their credibility.

How to avoid it:

• Benchmark realistic returns: Align expected ROI with market norms—typically 8–12% for most real estate investments.
• Verify financing alternatives: Ask why the borrower didn’t approach conventional or lenders first, which would likely provide them with lower rates.
• Tap RCN Capital’s lending expertise: RCN Capital's competitive rates (9.20% on fix-and-flip to 5.75% on long-term rentals) balance risk-reward profiles.

4. Skipping Legal and Documentation Reviews

Mistake: Proceeding without thorough legal counsel or proper documentation

Counting on verbal contracts or unsigned documents opens the door to disputes, delays, and risk exposure. Unclear terms regarding interest, fees, or exit triggers can blow closings and undermine broker-client trust.

How to avoid it:

• Engage specialized counsel: Use real estate attorneys experienced in private lending to draft secured promissory notes.
• Standardize document checklists: Maintain a checklist covering purchase agreements, appraisals, corporate documents, and insurance.
• Streamline with RCN Capital’s BLN portal: The white-labeled Bridge Loan Network streamlines client document uploads, guaranteeing completeness with audit trails.

5. Neglecting Exit Strategy Alignment

Mistake: Failing to confirm borrower exit plans and timelines

All private loans need to be linked to an exit strategy—sale, refinancing, or portfolio conversion. Brokers who forget about this risk funding transactions with incompatible terms, leaving borrowers in distress or refinancing holes.

How to avoid it:

• Document exit scenarios: Require a written exit plan, including projected sale dates or refinance assumptions.
• Match program to strategy: Align loan term with exit strategy—short‑term bridge for flips, 30‑year rental financing for buy‑and‑hold.
• Leverage RCN Capital loan programs for brokers: RCN Capital offers New Construction, Multifamily, and Rental Portfolio options that fit diverse exit plans.

6. Ignoring Broker Protection and Transparency

Mistake: Working with lenders who sideline brokers after submission

Transactions can fall apart when brokers lose sight of clients who are poached by predatory lenders. Lack of compensation transparency and non‑circumvention agreements exposes you to risk.

How to avoid it:

• Require non‑circumvention clauses: Ensure the lender cannot bypass you to contact clients directly.
• Demand upfront fee disclosure: All fees and broker compensation must appear on commitment letters and HUD statements.
• Partner with RCN Capital: RCN Capital's model ensures broker protection, open compensation, and personal support from initial application through closing.

7. Overlooking Market Trends and Data

Mistake: Making decisions without current market insights

Static assumptions regarding rates, cap rates, or borrower demand create overpriced or under-secured loans. Market conditions can change very fast—disregarding real‑time data is a recipe for disaster.

How to avoid it:

• Monitor key metrics: Track 30‑year mortgage rates (6.72% in July 2025), average days on market (23), and private lending growth (+12% for investment properties).
• Adjust your offerings: Tailor loan terms and LTVs to reflect rate fluctuations and borrower profiles.
• Use RCN Capital’s streamlined process: With pre‑approval within 24 hours and closings within 10 business days, you can keep up with market speed demands.

Structuring Your Broker‑Originated Private Lending Workflow

• Confirm borrower strategy and exit.
• Verify property type and location.

• Submit a complete application via RCN Capital’s BLN portal.
• Receive a decision within 24 hours.

• Engage RCN Capital’s in‑house team for asset‑based underwriting.
• Coordinate legal review and secure a promissory note.

• Collect appraisal, insurance, and title docs.
• Finalize the transparent fee structure on the HUD statement.

• Track loan servicing and borrower compliance.
• Plan for exit or refinance per the previously determined strategy.

Why RCN Capital Stands Apart

• Direct Private Lender: All approvals are done in‑house, which means no correspondent delays.
• Speed & Flexibility: Pre‑approvals in 24 hours; closings in as little as 10 business days.
• Broker‑First Protections: Non‑circumvention, the white‑labeled BLN portal, and clear compensation.
• Comprehensive Loan Programs: Fix & Flip, Long‑Term Rental, Multifamily, New Construction, Rental Portfolio, and Bridge Loans.
• Competitive Compensation: Flexible referral options with yield spread, points, or flat fees.

Moving Forward with Confidence

Private lending provides opportunities for brokers who are aware of and actively endeavor to avoid frequent pitfalls. Your success relies on a blend of comprehensive due diligence with disciplined risk control, and effective due diligence.

Get in touch with RCN Capital today to find out how our broker program can assist you with creating a more secure and profitable private lending practice.