Why Loan Structure Matters More Than Rate

Why Loan Structure Matters More Than Rate

One of the most common questions I get from borrowers and capital partners is about rate.

That makes sense. Rate is visible and easy to compare.

What often gets overlooked is that rate is rarely the most important variable in a loan. In practice, loan structure plays a much bigger role in risk, predictability, and long-term outcomes.

Rate Is Easy to See. Structure Does the Real Work.

Two loans can both be priced at 12 percent and behave very differently depending on how they are structured.

Key structural details include:

• When interest actually begins accruing

• How much capital is deployed versus reserved

• How and when rehab funds are released

• What happens if timelines extend

These mechanics quietly determine whether a loan performs smoothly or creates friction for everyone involved.

Why We Favor Simple, Transparent Structures

At 42 Solutions, we have learned that simplicity scales better than complexity.

Simple structures:

• Are easier for borrowers to understand

• Reduce misunderstandings mid-project

• Improve payment consistency

• Create cleaner servicing and reporting

That benefits borrowers, capital partners, and the business itself, especially over long time horizons.

Complexity does not automatically increase returns. More often, it increases noise and operational risk.

Predictability Is an Underrated Risk Control

One of the biggest risks in private lending is not default. It is uncertainty.

Unclear timelines Unclear capital usage Unclear payment expectations

Predictable structures reduce those variables. When expectations are clear from day one:

• Borrowers plan more effectively

• Capital is managed more efficiently

• Surprises are minimized

It is not flashy, but it works.

Structure Should Follow the Deal, Not Market Hype

Not every project carries the same risk profile.

Some deals are:

• Short duration

• Light rehab

• Highly predictable

Others involve:

• Larger scopes

• Permitting exposure

• Longer timelines

A common mistake lenders make is forcing one structure onto every deal or chasing market trends instead of underwriting reality.

We believe structure should follow risk, not convention.

Playing the Long Game

Private lending is not about winning every deal.

It is about:

• Consistent execution

• Capital preservation

• Repeat relationships

• Staying solvent through cycles

Clean, thoughtful structures make it easier to say yes when it matters and no when it does not.

That mindset allowed us to grow responsibly in 2025, and it will continue to guide decisions in 2026.

Closing Thought

Rate gets attention. Structure determines outcomes.

The best deals are not always the cheapest or the most aggressive. They are the ones everyone understands from day one.

In the next issue, I will share how we think about reserves, liquidity, and why growing slower at times can actually be the most aggressive long-term strategy.

Capital Edge Office Hours

I’m launching a live, 30-minute Office Hours session where I break down one private lending or capital allocation topic, then open it up for questions and discussion. It’s a small, interactive setting focused on risk management, deal structure, and how I think about deploying capital.

If you want an invite to the next session, DM me “OFFICE HOURS” to this post. You can also reply with a question you’d like me to cover live.

Devon Kennard Founder, 42 Solutions LLC