When borrowers think about financing, the focus is often on the loan amount, rate, and terms. But private lenders like Enact Partners look deeper at a borrower’s liquidity and level of commitment to their own project. Liquidity is not just about cash in the bank. It is about readiness. It tells a lender whether a borrower can manage the unexpected, stay on schedule, and protect the investment.
For business purpose borrowers and brokers, understanding how liquidity and borrower equity affect lending decisions can make the difference between a quick approval and a stalled deal.
Why Liquidity Matters
Liquidity is one of the most important and misunderstood parts of a loan application. It is not just the total dollar amount of someone’s assets, but how accessible those assets are if something changes during the project. When reviewing a borrower’s financials, lenders look for balance. Real estate investors and business owners often have wealth tied up in properties or equipment. But if everything is illiquid, it leaves little room to absorb delays, overruns, or timing gaps.
That is why having some cash or near cash reserves matters. It shows that the borrower is prepared to keep things moving even when a project does not go exactly as planned, and in real estate, that is the rule, not the exception.
Skin in the Game: Why Borrowers Fund First
Private lenders expect borrowers to invest in their projects before loan dollars are deployed. It is a show of commitment and a risk alignment. When borrowers contribute equity before closing, it means they believe in the project enough to back it with their own capital.
Enact Partners requires this in most transactions. Borrowers fund early development, initial site work, or part of the construction before our funds are released. This approach keeps interests aligned and ensures both borrower and lender are working toward the same outcome, a successful, completed project.
Equity up front also makes a loan stronger. It reduces the lender’s exposure, creates financial cushion, and increases confidence that the borrower will stay engaged through completion.
Real World Example: The Magnolia Project
A recent deal in Magnolia, Texas illustrates how this balance between liquidity and equity works in practice.
The borrower was developing a multi-building light industrial project along a busy corridor outside Houston. The site was fully entitled and shovel ready, within a submarket known for sustained small bay industrial demand. Before Enact Partners ever funded a dollar, the borrower had already invested significantly by acquiring the land outright, completing pre development work, and beginning the early stages of construction using personal funds.
That early investment showed discipline and confidence. By the time Enact reviewed the project, the borrower’s equity and liquidity together demonstrated staying power. This was not speculative. It was a plan already in motion.
Enact structured a $3.55 million construction loan to fund completion from mid phase to certificate of occupancy. The loan featured an as drawn interest structure, a full construction holdback, and a lender contingency to manage unforeseen costs. The borrower’s liquidity provided an additional layer of comfort, enough to handle shortfalls without slowing progress.
This combination, strong upfront equity and healthy liquidity, is what makes deals like Magnolia work. It is not about how much the borrower has, but how well they have prepared.
Liquidity vs Leverage: Finding the Right Mix
Many borrowers focus on leverage, how much they can borrow relative to the project’s value. But lenders are equally focused on liquidity. High leverage without liquidity is a warning sign. It means the borrower may not have enough flexibility to handle construction changes, interest payments, or closing delays.
That is why Enact’s underwriting balances the two. We look at how much capital a borrower has already invested and how much access they have to additional funds if needed. A well structured deal has both healthy leverage and sufficient liquidity. It does not rely solely on the lender or the project’s future value to stay on track.
How Enact Partners Evaluates Liquidity
When Enact reviews liquidity, we look beyond bank balances. We evaluate total financial readiness, including personal savings, business cash flow, and available credit. The key question is: Can the borrower comfortably manage the project’s real world needs without relying entirely on loan proceeds?
We also look at how liquidity fits into the borrower’s broader financial picture. In the Magnolia transaction, the borrower had prior experience with construction management and had built in contingency planning from the start. That preparation reduced risk for both sides.
Borrowers who demonstrate this kind of readiness typically move faster through underwriting because the structure makes sense. There is alignment between ambition and financial execution.
Preparing for a Private Loan: What Borrowers Can Do
Borrowers do not need millions sitting idle to qualify for private financing, but they do need to show preparation and financial control. Here are a few steps that make a difference when working with private lenders:
- Document equity contributions early. Track what you have already invested in the project, including land costs, permitting fees, and construction expenses.
- Maintain liquidity buffers. Even a modest reserve can make a lender more comfortable funding your next phase.
- Have clear exit strategies. Whether your plan is to refinance, sell, or lease up, lenders want to know how you will take the project across the finish line.
- Stay transparent. Private lenders move quickly when communication is clear and documentation is organized.
When a borrower approaches a lender with preparation and liquidity, they are not just asking for capital. They are showing they understand how to manage it.
The Takeaway: Liquidity Builds Credibility
At its core, liquidity is not just about money. It is about readiness, discipline, and credibility. Borrowers who demonstrate those traits are the ones who get funded and stay funded.
Enact Partners’ approach to private lending is built on partnership. We look for borrowers who have invested time, capital, and thought into their projects because those are the deals that perform. Liquidity and skin in the game are not just requirements. They are indicators of long term success.
If you are planning your next project, start by making sure your capital structure supports your goals. Submit your loan request today.
