NPLA Meeting Recap: Cash Management for Private Lenders

Recap and Insights provided by James Martin, VP of Operations at GoDocs

Daily Cash Flow Strategies & Unique Approaches to Common Challenges: How does one approach balance sheet management and daily lending platform operations? 

Roc Capital: Harry Varelas, Vice President of the Trades Team at Roc Capital, orchestrates a substantial workforce and intricate operational procedures to maintain liquidity. Daily morning meetings synchronize efforts, focusing on comprehending cash reserves, analyzing loan portfolio statuses, and assessing mark-to-market loan valuations amidst rate fluctuations. Effective hedging strategies mitigate risks associated with rate volatility while establishing reliable capital sources, which is imperative for sustained operations.

Toorak Capital Partners: In a constantly changing business environment, having enough cash reserves is essential to maintaining smooth operations and profitability. Funding should be prioritized to prevent losses and ensure timely payment of salaries, which is non-negotiable. Building strong relationships with major capital providers and meeting their requirements promptly is important. For Toorak, a weekly operational plan guides activities along with a safety net for emergency funding that is accessible within hours. 

Renovo Financial: Daily forecasting and fostering strong relationships with warehouse lenders and banks are pivotal for Renovo Financial. A constant management of covenants ensures compliance while forecasting uncertainties are continuously refined to ensure timely repayment of loans and salaries. Diversifying funding sources and nurturing relationships with borrowers and capital providers are crucial for operational stability. 

Forecasting: Shared Challenge, Varied Solutions: How Hard is it to Become Accurate? What strategies do you use to forecast?

Roc Capital: Daily meetings, ongoing communication with borrowers and attorneys, and close engagement with capital providers ensure accurate forecasting. Maintaining a 10-30% cushion on any given day with increased percentages during heightened closing activities ensures smooth operations. 

Toorak Capital Partners: Constant communication with lenders sharing pipelines enables coordination, enhancing reliability as a correspondent lending platform. A 10% cushion suffices for daily operations, supported by a warehouse line covering most cash needs. 

Renovo Financial: With a robust operations team, Renovo maintains a cushion of around 10-30%, adjusting as needed throughout the month for stable operations. 

Balance Sheet Holdings and Sales: How much is held on the balance sheet versus sold? 

Renovo Financial: Despite selling the majority of volumes to partners, every loan undergoes Renovo’s consistent underwriting process. While actively engaging with three counterparty investors for liquidity, scaling to more partners poses challenges in meeting demands effectively. 

Toorak Capital Partners: Loans are maintained on the balance sheet until securitized, focusing on buy-and-hold strategies. 

Roc Capital: Unlike traditional strategies, Roc actively trades all loans, avoiding long-term placements. Strong partnerships with capital providers and a managed REIT afford control over the loan portfolio, prioritizing stringent underwriting standards for stability and prudence. 

Enhancing Cash Position: What’s the first step to improving cash position? 

Roc Capital: Securing a warehouse line without overcommitting is crucial, ensuring dependable capital providers to avoid failing to fund loans. 

Toorak Capital Partners: For smaller ventures, identifying reputable table providers is key, while larger endeavors necessitate partnerships with reliable correspondent partners for scaling operations. 

Advice for Smaller Lenders: What advice would you offer smaller lenders to enhance cash management? 

• Ensure a diversified capital base for long-term stability. 
• Cultivate strong relationships for support. 
• Conduct thorough financial analysis when raising capital. 
• Scale with robust infrastructure and transition towards a corporate structure as the business grows to enhance credibility and facilitate access to funding. 

Author Bio:

GoDocs is an innovative leader in automated loan document generation, transforming the commercial lending process. With a fully cloud-based platform, GoDocs provides a flexible digital solution that makes commercial loans more cost-effective to document and faster to close, all while maintaining compliance in all 50 states. GoDocs is a Corporate Member of the NPLA.

GoDocs.com