Why 12% Private Capital May Be Cheaper Than It Looks

Private and hard money 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 is not. The real cost of capital is not 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 did not 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.

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 is the exact opposite,” he says. “Our borrowers are so grateful to us. We’re coming through in four or five days when everyone else said no or told them to wait two months. The people leaving us Google reviews aren’t upset about the rate. They’re thanking us for saving their deal.”

Miller points to Elon Musk as an example. The wealthiest person in the world does not borrow at six percent. 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 does not look like a loan.

The real alternative is usually more expensive. Miller tells a version of the same story often. A local investor finds a property. It needs work, but it could be worth significantly more when done. They do not have the cash. Rather than borrow at 12 percent from a private lender, they bring in a family member who puts up the money in exchange for half the profit.

“That’s what people think of as the acceptable option,” Miller says. “But when you do the economics, giving up 50 percent of your profits is far more expensive than borrowing the money at 12 percent. 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 factoring in what the deal actually returns, or what is given up to get access to money at a lower nominal rate.

Gelt went through the 2008 financial crisis like every other lender. They got hit. They had hundreds of defaults. Miller describes the aftermath as clarifying. “We went back through everything that went bad and asked where did we lose money, and where we didn’t. What we found was when we stayed disciplined, we didn’t lose a penny. Every single loss came from exceptions. I’ll do this one, I’ll make an exception there. All of it, 100 percent, came from those exceptions.”

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. The discipline that comes from surviving the Great Recession is not something that can be replicated through a good run of deals.

Banks have become more restrictive. Regulatory requirements are stricter. Approval timelines have stretched. At the same time, private capital has grown more sophisticated, more structured, and more accessible. Miller believes the shift is permanent. Private capital used to be the option you turned to when everything else failed. That is changing. For time-sensitive deals, bridge transactions, and borrowers whose profile does not fit the bank template, it is increasingly the first call.

“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.