A Standard Language Will Bring a Level of Cohesiveness Across Industry By Amy Kame With its intricate terminologies and concepts, the private lending industry can be seen as a dynamic ecosystem teeming with various entities and processes. In this environment, lenders, borrowers, regulators, and investors coexist and interact, propelling the industry’s growth and evolution. With this type of interdependence, a universal language — or, in this case, a standard glossary of terms — is essential to ensure the smooth functioning and effective interaction of all parts. As the private lending industry evolves and matures, it becomes increasingly crucial to establish a set of standardized terms and definitions. The need for a comprehensive glossary becomes more evident as it gradually transitions from a niche sector into a more institutionalized industry. A standard glossary is a valuable asset to the industry as it ensures uniformity in communication, understanding, and interpretation across diverse stakeholders — including legislators, the general public and the lenders themselves. The NPLA is proud to publish the first Private Lending Glossary, accessible at nplaonline.com. The glossary was authored in a collaborative effort by senior leaders of the private lending industry: » Jonathan Hornik, Esq., Private Lender Law » Jeff Tennyson, Lima One Capital » Eric Abramovich, Roc Capital » John Beacham, Toorak Capital Partners » Stephan Leccese, Sharestates » Jeffrey Tesch, RCN Capital » Chip Cummings, Lima One Capital. The Growth of Private Lending The private lending industry has undergone a significant transformation in the last 10 years. Before 2015, this sector consisted of a scattered group of family offices and individual lenders offering capital in spaces where traditional lenders were reluctant to venture. However, a shift occurred in 2015 when Wall Street and institutional capital identified private lending as a promising alternative asset class, sparking a transformation for our industry. This recognition from institutional capital boosted the industry’s legitimacy and catalyzed its metamorphosis. An influx of more affordable capital led to the emergence and growth of new firms. As the industry evolved, it started integrating more conventional lending guidelines and underwriting standards. This shift toward more quantitative models and standardized risk assessment increased private lending’s transparency and predictability, further solidifying its place in the broader financial ecosystem. It is time for the industry to take another step forward and adopt a standard language that will bring a new level of cohesiveness across industry firms. New Explorer’s and Stakeholder’s Understanding In this intricate financial ecosystem of private lending, legislators, developers, and the general public are akin to explorers, needing a comprehensive guide to understand and navigate its complexities. A standard glossary of terms serves as a trusted field guide for these explorers, offering a clear understanding of the unique species of loans, types of lenders, the different property types, and the diverse ways loans are serviced. What is the difference between a Table Funder, White Label Lender, Wholesale Lender, etc.? What loan products do these lenders offer, and what financial analysis and risk assessments are performed before funding a loan? The glossary provides a roadmap for new explorers to understand the complexities of private lending and how it can be a viable option for borrowers compared to traditional funding sources. For example, private lending can be seen as an essential and stable financing source for borrowers. Due to interest rate increases and recent bank failures, tighter lending standards from regional banks are making it harder for builders and developers to secure funding. According to the National Association of Home Builders (NAHB) quarterly Survey on Acquisition, Development, and Construction (AD&C), in the first quarter of 2023, 117 builders responded and reported AD&C financing was more costly than in the fourth quarter of 2022, even as mortgage rates were stabilizing. 66% of survey respondents cited that their traditional lender reduced the amount they were willing to lend. For many builders and developers, private lending might be uncharted territory. The glossary bridges the knowledge gap and demystifies the industry, making it more approachable to outsiders and thus promoting better engagement with all stakeholders. Better Informed Policymakers Such a guide can also lead to more informed policymaking, better investment decisions, and a general increase in trust and confidence in the industry. When the NPLA was founded in 2019, our founders believed the sector needed effective representation at a legislative level. Jonathan Hornik, Esq., NPLA Executive Director and General Counsel, stated the important role legislators and regulators have on private lending, “What the private lending industry does is provide needed capital to improve housing. Our job at the NPLA is to help legislators understand the positive impact our members and all private lenders have on their communities.” Hornik continued, “What lawmakers want to know is, ‘What is the impact on my community as a whole and why?’ The NPLA reviews legislation and ensures that policymakers understand the ramifications of legislation on the private lending community,” he said. Legislators and regulators play a significant role in shaping the private lending industry. Adopting a standardized glossary of terms allows us to communicate more effectively with these stakeholders, enabling them to better comprehend the nuances of private lending. This shared language serves as a bridge, connecting policymakers with the industry, enhancing mutual understanding, and fostering more informed, beneficial legislative and regulatory decisions. Enhancing Our Reputation Within this ecosystem, private lenders, capital providers, and industry service providers are key inhabitants who need to communicate and interact effectively for the ecosystem to thrive. A shared understanding of these terms is crucial when it comes to different loan types, loan tape data items, and loan servicing definitions. A standard glossary ensures that lenders, regardless of size or reach, speak the same language, fostering a healthier business environment and enhancing operational efficiency. A glossary is not just a tool for understanding; it is a badge of professionalism and maturity. It reflects our industry’s commitment to clarity and transparency. Furthermore, it contributes to maintaining ethical standards, fostering trust, and enhancing the overall reputation of the private lending industry. Capital markets are
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