Why Borrower Quality Matters More Than Deal Volume

WHY BORROWER QUALITY MATTERS MORE THAN DEAL VOLUME

One of the clearest lessons reinforced in 2025 was this: not all deal flow is created equal.

You can fund a high volume of loans and still introduce unnecessary risk. Or you can fund fewer loans with the right borrowers and build a far more durable lending business.

At 42 Solutions, we have made a very intentional shift toward the latter. Volume alone is not the goal. Quality execution is.

Fewer Loans, Stronger Borrowers

Over the past year, we focused heavily on strengthening our borrower bench across Arizona. That meant making harder decisions up front, including:

• Saying no more often

• Spending more time underwriting people, not just properties

• Prioritizing repeat borrowers with proven execution

The result is a smaller but significantly stronger core group of borrowers.

Today, our highest-quality borrowers consistently demonstrate:

• Strong liquidity

• Realistic timelines and construction awareness

• Proactive communication

• Clean, disciplined exits

Those traits matter far more than headline deal size or aggressive projections.

Why Borrower Quality Changes the Entire Portfolio

High-quality borrowers do not just reduce individual loan risk. They improve the entire lending system.

They tend to:

• Pull draws more predictably

• Finish projects faster

• Avoid last-minute surprises

• Protect equity

• Maintain consistent payment behavior

This directly impacts:

• Loan velocity

• Capital redeployment timelines

• Overall portfolio stability

In short, borrower quality quietly drives long-term performance.

Cherry-Picking Is a Privilege, Not a Given

One of the outcomes of 2025 that I am most proud of is not a revenue number.

It is this: we now see more quality deals than we have capital to deploy.

That puts us in a position of strength. When a lender can choose who to work with, not just what to fund, risk management improves dramatically.

This allows us to:

• Maintain conservative loan-to-value ratios

• Avoid stretching on structure

• Decline deals that do not fit our risk profile

That is exactly where we want to be.

How This Shapes Our Approach Going Into 2026

As we move into 2026, borrower selection remains a core pillar of the business.

Growth matters, but it will never come at the expense of:

• Underwriting discipline

• Loan structure integrity

• Capital partner protection

We would rather grow steadily with the right borrowers than grow quickly with the wrong ones. That mindset allowed us to scale responsibly in 2025, and it will continue to guide us moving forward.

Closing Thought

In private lending, the deal is only as good as the person executing it.

Properties can be re-priced. Markets can shift. Timelines can move.

People are the constant.

Choosing the right ones makes everything else easier.

Next week, I will break down how loan structure, including Dutch vs. non-Dutch and senior vs. subordinate positions, impacts risk and why simplicity often wins.