Private Capital at 12 Percent Isn’t Expensive. Misunderstanding It Is.
By: KeyCrew Media
Private lending gets a bad reputation, and much of it comes down to the rate. When a borrower hears 12 percent and has a bank quote sitting at six, the math feels obvious. It isn’t.
The real cost of capital isn’t just the interest rate on the page, and according to Gelt Financial, a national private lender with nearly four decades in the market, most borrowers who walk away from private capital because of the rate end up paying more in ways they didn’t account for.
H. Jack Miller, who founded Gelt in 1989 and has been underwriting real estate deals ever since, has spent years making this case. The number that looks expensive is often the number that makes the deal possible at all.
The Tony Soprano Problem
Miller calls it the “Tony Soprano perception.” Private capital sounds like it belongs in a back-room deal, loan sharking, something reserved for people with no other options.
The reality, he says, is the opposite. Gelt regularly closes deals in four to five days after banks have said no or asked borrowers to wait two months. Borrowers who leave reviews aren’t complaining about the rate. They’re focused on the speed of execution and the experience of working with a lender that follows through.
Miller points to Elon Musk as a counterexample. The wealthiest person in the world does not borrow at six percent all of the time. He raises capital through private equity and venture funding. When you factor in the equity stake surrendered, that capital costs more than 12 percent. It just doesn’t look like a loan.
The Real Alternative Is Usually More Expensive
The more common comparison isn’t Musk, but a local investor who brings in a family member or business partner rather than borrow from a private lender. The partner puts up the money in exchange for half the profit, an arrangement that feels more palatable than a 12 percent rate but is often far more costly when the numbers are run.
“When you do the economics, giving up 50 percent of your profits is far more expensive than borrowing the money at 12 percent,” Miller says. “And you have to deal with that person at every dinner table for the rest of your life.”
The mistake, he argues, is treating the interest rate as the total cost of capital without accounting for what the deal actually returns, or what’s surrendered to access money at a lower nominal rate.
What 37 Years of Underwriting Teaches About Discipline
Gelt went through the 2008 financial crisis like every other lender. They had hundreds of defaults. Miller describes the period that followed as clarifying.
After reviewing every deal that went bad, a pattern emerged: every loss came from exceptions, cases where underwriting discipline slipped in favor of getting a deal done. “100 percent of losses came from those exceptions,” Miller says. “When we stayed disciplined, we didn’t lose a penny.”
He draws a clear distinction between Gelt and newer entrants in the private lending market, most of which launched in the last decade and have never operated through a significant economic downturn. Surviving the Great Recession produced a level of discipline that a strong run of deals in a favorable market cannot replicate.
The Structural Shift in How Real Estate Gets Financed
Banks have grown more restrictive over the past several years. Regulatory requirements are stricter, approval timelines have stretched, and more borrowers, particularly those pursuing time-sensitive or value-add deals, are finding that the bank template no longer fits their situation.
Private capital has expanded to fill that gap, becoming more sophisticated, more structured, and more accessible than it was a decade ago. Miller believes the shift is permanent. Private capital used to be the option borrowers turned to when everything else had failed. For bridge transactions, fast closings, and profiles that don’t fit conventional underwriting, it is increasingly the first call.
“Some people still say, ‘Oh my god, 12 percent,’” Miller says. “But sophisticated operators understand that if the deal works at the cost of capital, the cost of capital is not the problem.”
Gelt’s track record across hundreds of closed deals reflects that logic in practice: fast, flexible financing for borrowers who need to move and deals that make sense on the numbers.
About Gelt Financial: Gelt Financial LLC is a national private lender and distressed debt buyer operating across 37 states. Founded in 1989, the company specializes in commercial bridge loans, foreclosure bailouts, and non-performing loan acquisitions for real estate investors and operators.
Disclaimer: This article is intended for informational purposes only and does not constitute legal, financial, or investment advice. The views and opinions expressed herein reflect those of the individuals quoted and do not represent an endorsement of any company, product, or service mentioned. Readers should conduct their own due diligence and consult qualified professionals before making any investment decisions.
