Private Capital at 12% Isn’t Expensive; Misunderstanding the Cost of Capital Is, Says Gelt Financial Founder

Private lending rates of 12% may appear steep compared to bank loans at 6%, but according to H. Jack Miller, founder of Gelt Financial, the real cost of capital is more nuanced. In a recent interview, Miller challenged the perception that private capital is inherently expensive, emphasizing that borrowers who walk away due to the rate often end up paying more in hidden costs.

Miller, who founded Gelt in 1989 and has been underwriting real estate deals for nearly four decades, calls this the ‘Tony Soprano perception.’ He says private capital is often mischaracterized as a last-resort option akin to loan sharking. ‘The reality is the exact opposite,’ Miller said. ‘Our borrowers are so grateful to us. We’re coming through in four or five days when everyone else said no or told them to wait two months.’ He points to Google reviews where borrowers thank Gelt for saving their deals, not complain about the rate.

To illustrate his point, Miller cites Elon Musk, who raises capital through private equity and venture funding. When factoring in the equity stake surrendered, that capital often costs more than 12%, but it does not look like a loan. Similarly, a local investor who brings in a family member for capital in exchange for half the profit is giving up far more than a 12% interest rate, and must also deal with that person at every dinner table. ‘That’s what people think of as the acceptable option,’ Miller said. ‘But when you do the economics, giving up 50 percent of your profits is far more expensive than borrowing the money at 12 percent.’

The mistake, he argues, is treating the interest rate as the total cost of capital without factoring in what the deal actually returns or what is given up to access money at a lower nominal rate. Gelt’s experience through the 2008 financial crisis reinforced this discipline. After hundreds of defaults, Miller analyzed every loss and found that not a penny was lost when they stayed disciplined. ‘Every single loss came from exceptions,’ he said. ‘All of it, 100 percent, came from those exceptions.’

Miller draws a distinction between Gelt and newer entrants in the private lending market, most of which have never operated through a significant downturn. The discipline from surviving the Great Recession cannot be replicated through a good run of deals. Meanwhile, banks have become more restrictive, with regulatory requirements and longer approval timelines. Private capital has grown more sophisticated and accessible.

Miller believes the shift is permanent. For time-sensitive deals, bridge transactions, and borrowers whose profile does not fit the bank template, private capital is increasingly the first call. ‘Sophisticated operators understand that if the deal works at the cost of capital, the cost of capital is not the problem,’ he said. Gelt’s track record across hundreds of closed deals reflects that logic in practice: fast, flexible financing for borrowers who need to move and deals that make sense on the numbers.

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