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Transcript: What’s the easiest type of capital to raise?

Like so much in life, the answer to that question is another question. The question to ask is: “What is the easiest type of loan to settle a lender’s fears around?” A lender’s fears revolve around losing their money; it’s usually not their money, but their investors’ money. That’s actually a way bigger headache than losing your own money, because when the loss happens you have angry investors on your hands, you lost your reputation, and then you lose your money anyway as a lender, whether you’re a bank or an alternative lender. If you apply the framework of “fear of loss” (which is an emotional framework) then you’ll see for example.

Startup business loans or anything resembling venture capital will be hard. Don’t even waste your time going to your bank, because your bank manager doesn’t want to explain to your granny why her savings are gone because you had a bright idea that didn’t work out. And if you think about it, it makes sense. You want to find a rich uncle, or a venture capital fund prepared for that kind of risk. These are usually guys who invest, knowing that 9 out of 10 investments will tank, but the one that doesn’t will be Facebook and that one will compensate for the other 9.

This framework is why I focus on secured loans. If you come to me looking for venture capital or an unsecured loan, I wouldn’t want those consulting fees from you. Because the amount of aggravation I’ll have to go through to one day, maybe, get my success fee (which is where I make money), will just be too much.

I tend to focus on loans that have firm, easily trade-able security. Like real estate; and not just any real estate; normally real estate with an income, like a shopping centre, office block, or even a collection of homes. It’s also why I like trade finance, because it usually involves an easily trade-able commodity of some sorts, a sales contract, and even a debtor that I can take a view on or get credit insurance on.

When you think about a lender’s fears, it tends to unlock the decision-making process.