WHY “LOW DEFAULTS” MATTERS MORE THAN GROWTH

One of the most common questions I get is some version of:

“Is growth the main goal for 42 Solutions?”

The honest answer is: no.

Growth is a byproduct of doing the fundamentals well — not the objective itself.

In 2025, 42 Solutions LLC had:

• 0 defaults

• 0 foreclosures

That matters more to me than any single revenue or loan volume number.

Here’s why.

In Private Lending, Survival Is the Game

Private lending isn’t about chasing the highest yield.

It’s about not losing money when things go wrong.

Markets change.

Borrowers make mistakes.

Projects slow down.

Exit assumptions get tested.

A lending business doesn’t fail because it has one bad loan.

It fails because it has multiple bad loans at the same time, with insufficient reserves and weak underwriting.

Avoiding that outcome is the core of our strategy.

How We Think About Risk at 42 Solutions LLC

We design the business assuming things will go wrong — eventually.

That’s why we focus obsessively on:

• Conservative loan-to-after-repair value (LTARV) targets

• Borrower experience and track record, not just the deal

• Realistic exit assumptions, not optimistic ones

• Liquidity and reserves at the company level

In 2025, our average LTARV across all loans was 68.8%.

That margin of safety gives us multiple options if a project stalls:

• Time

• Capital

• Flexibility

Those three things matter more than speed when conditions tighten.

The Real Advantage Is Optionality

A lender with strong underwriting and reserves has options.

They don’t have to:

• Force a foreclosure prematurely

• Fire-sale a property

• Pressure borrowers into bad decisions

Instead, they can:

• Work through delays

• Extend when it makes sense

• Protect principal first

That optionality is what allows us to stay consistent — even in slower or more volatile environments.

Why This Shapes How We’re Approaching 2026

Going into 2026, our priority is not to “swing harder.”

It’s to:

• Maintain discipline

• Improve loan velocity where appropriate

• Continue strengthening reserves

• Protect downside before chasing upside

That approach may look boring at times — and that’s intentional.

In lending, boring is often profitable.

Closing Thought

Anyone can grow quickly when conditions are easy.

Very few businesses are built to last when they aren’t.

Our focus remains the same:

• Protect capital

• Choose borrowers carefully

• Stay liquid

• Let growth happen naturally

In the next newsletter, I’ll share how we think about reserves, liquidity, and why building a stronger balance sheet is a competitive advantage most lenders underestimate.

— Devon Kennard