How to Start a Private Lending Fund

Most managers who launch a private lending fund are already lending — brokering or funding bridge loans deal by deal, or running loans off a personal balance sheet and selling participations. The fund solves the capital problem that model hits: borrowers need certainty of close in days, and raising per-loan means losing the best loans to lenders with committed capital.

That history is also your pitch. LPs want to see an origination track record — loans funded, payoffs received, delinquencies worked out — before they'll fund the pipeline. If you haven't originated yet, the fund raise is premature; lend your own capital or co-fund with an established lender first.

Two structures dominate direct-to-borrower real estate lending, and LPs will ask which you are:

A private lending fund's PPM should read like a credit policy, because that's what LPs are buying. Write the box down and treat exceptions as reportable events:

Direct-to-borrower lending is state-regulated, and the rules turn on details: some states require a lender or mortgage license even for business-purpose loans, others exempt them; usury caps and their business-purpose carve-outs differ state by state; and lending to an entity versus an individual can change the analysis entirely. Getting it wrong can make loans unenforceable or interest uncollectible.

Treat the licensing map as a formation-stage work item with counsel: list the states in your box, confirm license and usury treatment for your loan type in each, and keep business-purpose documentation airtight on every file. Expanding the box later means re-running the analysis — which is a reason to define geography narrowly at launch.

Short-duration loans that constantly pay off make private lending a natural evergreen (open-end) strategy: LPs subscribe at NAV, income distributes quarterly (often monthly), and redemptions run on notice periods that respect the portfolio's actual liquidity — typically quarterly after a one-year lockup, with a fund-level gate. Duration is your friend here: a 12-month average loan term means the portfolio self-liquidates fast enough to meet reasonable redemptions without fire sales.

Fees follow the income-fund pattern rather than the buyout pattern: a 1.5–2% management fee — LPs increasingly expect it charged on deployed capital, not committed — and an incentive of 10–20% over a 6–8% hurdle, paid as income distributes. What LPs are really pricing is the spread between portfolio yield and their net return, so fee drag gets more scrutiny here than in equity strategies.

The Fund Builder models the fund's economics — target raise, fee basis and hurdle, distribution frequency, lockup and redemption terms, the underwriting box's LTV caps, lien position, and geography — and keeps the model, the pitch, and the legal inputs consistent. Scroll Deck presents the origination story and portfolio parameters with the fund's actual economics; Legal Canvas prepares the formation and offering documents for independent counsel review — with the state lending-license and usury analysis flagged for counsel, since that map is jurisdiction work counsel should own. The fund formation package is $6,000, prepared in days rather than months, and the generated fund site gives borrowers and LPs the same credible front door.