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If you are a mortgage broker, lender, or wholesale partner, you have most likely felt the effects of today's high interest rate climate. Traditional lenders are tightening their belts while the Fed keeps interest rates stable and inflation remains high, but private lending is stepping into the spotlight.
In the current rising-rate climate, private lending is no longer an afterthought—it's a competitive edge. As banks tighten credit and interest rates remain above 5%, private credit assets have ballooned from $1 trillion in 2020 to nearly $1.9 trillion at the beginning of 2024, and are expected to grow to $2.8 trillion by 2028. This expansion highlights the Private Lending Advantage: speed, flexibility, and tailored pricing that traditional loans can't provide.
Let's discuss why private lending in a is a sensible solution in 2025, contrast Private Loans vs Traditional Loans, and discuss high interest rate lending strategies to help you close more deals.
Why Private Lending Thrives in a High-Rate Environment
Banks Pull Back as Rates Rise
Traditional banks have become risk-averse as benchmark rates rise. Increased funding costs and tighter capital requirements lead banks to tighten underwriting standards on second homes and investment properties, taking many transactions beyond their risk tolerance.
Private Credit’s Explosive Growth
That pullback has fueled private credit’s rapid expansion:
- 2020: $1 trillion in assets
- Start of 2024: $1.9 trillion
- Forecast 2028: $2.8 trillion
This spike underscores the trends in private lending markets: investors and builders rely more and more on nonbank capital to close financing gaps.
Floating Rates Offer Real-Time Mitigation
Most private loans reset from time to time, so rates move with benchmarks. In a high-rate environment, this floating framework can actually preserve lenders' margins and provide borrowers with better visibility into future expenses, compared to fixed-rate bonds that depreciate as rates rise.
Private Loans vs Traditional Loans in 2025
|
Factor |
Private Loans |
Traditional Loans |
|
Approval Speed |
10-15 days |
30-60+ days |
|
Flexibility |
Custom terms (size, collateral, repayment) |
Rigid underwriting |
|
Interest Rates |
Floating rates tied to benchmarks |
Mostly fixed rates |
|
Borrower Profile |
Non-bankable businesses, investors |
Prime credit scores only |
|
Risk Management |
In-house underwriting & relationship-driven |
Box-ticking compliance |
Speed and Certainty
Private Loans vs Traditional Loans in 2025 amounts to time and certainty. Conventional mortgages tend to take 30–45 days to close; private loans can close in 10–14 days, allowing clients to lock up properties before others enter the fray.
Customized Terms
Where banks provide standardized packages, private lenders tailor terms to meet each transaction. Typical forms are:
- Interest-Only Payments during construction or rehab
- Mini-Perm Loans bridging to long-term financing
- Equity Participation to align lender-borrower incentives
This tailored flexibility appeals to real-world borrowers who need a bespoke solution.
Underwriting Focus
Banks focus on debt ratios and credit scores; private lending secures mainly on After Repair Value (ARV) and Loan-to-Value (LTV) for new construction and flips. This asset-based methodology broadens qualification for first-time developers and seasoned investors alike
High Interest Rate Lending Strategies
Direct Lending as Core Strategy
Direct lending—senior secured loans to private firms—is still the foundation of private credit, providing 11.6% average returns in high-rate environments, compared to 5–6.8% for leveraged loans and high-yield bonds.
Junior Capital & Mezzanine
When senior debt falls short, mezzanine and second-lien debt fill the gap. While subordinated, these vehicles usually feature equity kickers, enhancing total returns and insulating against high-rate headwinds.
Distressed & Special Situations
During downturns, distressed debt specialists excel, restructuring troubled balance sheets. Likewise, special situations financing—M&A bridge loans, divestiture financing—can demand premium yields when conventional banks hold back.
Sector Focus: Real Estate Bridge & Construction
Real estate remains a hotbed for private loans:
- Bridge Loans: 74,618 single-family flips in Q3 2024 (7.2% of sales) rely on quick private funding.
- Construction Loans: With a 1.5 million-unit shortage, private construction financing jumped 15% YoY in 2024.
Brokers who master these high-interest rate lending strategies can capture the lion’s share of market activity.
The Private Lending Advantage for Brokers
Expand Your Product Suite
By partnering with private lenders, you can offer clients:
- Quick-close bridge financing
- Tailored fix-and-flip loans
- Construction and mini-perm products
This diversification cements your role as a one-stop financing resource.
Boost Commissions & Loyalty
Greater loan values and niche products typically generate 15–25 bps more in fees than plain mortgages. In addition, customers who close high-profile deals with you are likely to refer colleagues and come back for subsequent projects.
Leverage Technology Partnerships
Implement AI-based underwriting and online platforms to facilitate streamlined deal submissions. Brokers who leverage these platforms achieve 3× more repeat business when they close loans within 14 days.
Become an Industry Thought Leader
Host market trend webinars, release market reports, and provide case studies—putting yourself at the forefront of private lending. Thought leadership drives organic referrals from both brokers and borrowers.
High rates aren’t going away in 2025—but neither is the demand for flexible, fast capital. By embracing private lending advantages, you’re not just surviving this market; you’re thriving in it. Whether it’s rescuing a distressed deal, financing a time-sensitive flip, or earning higher yields, private credit is your ticket to growth.
RCN Capital
The best way to save on a real estate investment is to obtain financing from a lender that can provide you with the best leverages and rates. RCN Capital lends to real estate professionals, commercial contractors, developers & small business owners across the nation. We provide short-term fix & flip financing, long-term rental financing, and new construction financing for real estate professionals. If you are looking to add private lending programs to your offerings, RCN Capital has competitive loan options and an award-winning broker referral program available to partners. Connect with us today to discuss our real estate financing solutions and how we can help you grow your business.