The private lending market is dividing along a single line: how much risk a lender took on when capital was cheap. According to Matthew Coleman, a private lending broker at Vi Capital Lending Group and former builder in Atlanta, who brokers deals through multiple lending sources and has direct visibility into their operations, lenders who approved no-money-down, no-reserve deals during the low-rate period are now facing defaults – while those who held to stricter standards are sitting on dry powder and waiting for distressed assets to come to market. The split, Coleman says, is already visible in the conversations he is having, and its consequences for borrowers and investors are still unfolding.
Coleman traces the current stress directly to underwriting decisions made when rates were low, and capital was abundant. During that period, he says, lenders approved deals with no reserves because they needed to get money on the street quickly. Rising prices bailed out deals that should not have closed. Borrowers who might not have qualified under stricter standards were getting funded.
That dynamic has reversed. “The ones that just went full-fledged in this market and did not keep reserves, the ones who said no money down, no reserves, they’re going to default,” Coleman says. “And who’s going to buy those with money?”
The answer, in his view, is the conservative lenders who held back – the ones seen as overly cautious during the boom who now have capital available while distressed assets surface.
Coleman describes the current mood among lenders he speaks with as split between those who are “scrambling” and those who are “just waiting.” The scramblers are restructuring, seeking new partners, and in some cases exiting the market entirely. The waiters are making selective bets and preparing for what they expect to be a buying opportunity as defaults accumulate.
Despite the stress in parts of the market, there is no shortage of available capital. The problem is that capital and qualified borrowers are not connecting. Funds with significant assets under management want to deploy, but the pool of borrowers who meet current underwriting standards has narrowed.
“There’s a whole bunch of people that are hurting, but there’s also a whole bunch of people who have money that would love to make money off of their money,” Coleman says. Idle capital has its own cost, and lenders with large reserves face pressure to deploy – but only into deals that meet a higher bar than what was acceptable during the boom.
This creates a structural mismatch. Borrowers who need capital most urgently are often the ones who cannot meet current standards – they lack reserves, experience, or sufficient equity. Borrowers who could qualify often have less urgency. Lenders caught in the middle – those who deployed aggressively and now need to recycle capital – find that the available deals do not match the risk profile they can afford to take on.
For borrowers trying to get funded in this environment, Coleman says the deciding factors are straightforward: cash reserves, credit, experience, and a property with sufficient equity. Borrowers who show up without operating capital or a realistic budget are the ones he tries to slow down before they commit. He compares it to a road trip funded with the last of two people’s money – “we’re only going to get so far in that car, and we’re going to run out of gas.”
The financing squeeze is not the only friction point. Coleman says sellers – particularly those with distressed or dated properties – are asking prices that do not reflect current conditions. Technology has given sellers easy access to estimated values, but those estimates often overstate what an investor can pay and still make a deal work after accounting for renovation costs, holding costs, and financing expenses.
“The sellers are kind of unrealistic,” Coleman says. He expects that pressure to ease as prices continue to soften and sellers recognize that the values they assumed no longer hold. But in the meantime, the gap between what sellers want and what investors can pay is keeping deals from closing.
Coleman says newer investors consistently make two mistakes: scaling too fast and underestimating total project costs. Many do not account for holding costs, budget overruns, or the gap between projected and actual profit. He describes investors who expect a $120,000 profit and end up with $90,000 – not because the deal failed, but because they never built a realistic budget.
“They don’t take into account holding costs,” Coleman says. “They don’t take into account that that 30 profit with that model is not 30.”
His advice is to map out every expense before committing capital and to maintain a line-item tracking system that accounts for losses on individual budget categories so the overall position stays visible throughout the project.
Coleman’s read on the broader trajectory is cautious but not pessimistic. He argues the current tightening is a necessary correction – one that will leave surviving operators and lenders better positioned for the next uptick. “The strong will survive,” he says. “The ones that kept their money and didn’t blow it – when it changes and it’s another uptick, we’re gonna win.”
If that assessment holds, the next cycle in private lending will look different from the last one. The operators and lenders who maintained reserves and enforced underwriting discipline during the boom are the ones now positioned to acquire distressed assets and deploy capital on favorable terms. The market is rewarding patience over velocity – and for borrowers seeking financing, that means the bar for getting funded is higher than it has been in years.
About the Expert: Matthew Coleman is a private lending broker at Vi Capital Lending Group and a former builder in Atlanta, Georgia, with prior experience in ground-up construction.
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.
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