In short
A private lender earns interest. Capital is lent to borrowers; the borrowers repay the capital with interest over an agreed period; the lender’s return is that interest. There is no share of profits, no dividend and no capital growth — the money does not grow by being revalued, it is paid for being used. The rate is set by what borrowers in that class will pay, which is shaped by the cost of money generally, the security behind the loan, and how likely repayment is. The return arrives as income, usually monthly, and stops when the loan is repaid.
01 — The source
Where the money actually comes from
Every rand a private lender earns comes out of a borrower’s repayment. That is the whole mechanism, and it is worth sitting with, because it explains almost everything else about the asset.
A borrower needs money now and can repay more later. The difference between those two amounts is the price of the money, and it is paid to whoever supplied it. Nothing about the arrangement depends on a market moving, a valuation rising, or a buyer being found later.
The plain version
You lend. They repay with interest. The interest is the return. If they repay, you are paid; the question that matters is always whether they repay.
Compare that with owning shares, where a return depends on a company’s profits and on what somebody else is willing to pay for your stake on the day you sell. Lending removes both of those variables and replaces them with one: does the borrower pay what they agreed, when they agreed it.
That is the trade. A lender gives up the upside — a borrower who does extremely well still only repays what was agreed — in exchange for a return that does not depend on anyone doing extremely well.
02 — The rate
What sets the interest rate
Three things set what a borrower pays, and they are the same three everywhere lending happens.
- The cost of money generally. In South Africa that anchor is the prime lending rate, which moves with the Reserve Bank’s repo rate. When prime moves, private lending rates tend to move with it.
- The security behind the loan. A loan with something solid standing behind it costs the borrower less than one with nothing. Security does not make repayment certain; it changes what happens if repayment fails.
- The likelihood of repayment. A borrower class that reliably repays pays less than one that does not. This is the part that does the most work and gets the least attention.
Rates in private lending are typically higher than a bank deposit pays, and the reason is not mystery or cleverness. A deposit is repayable on demand and sits inside a bank’s balance sheet; a private loan is committed for a term and depends on a specific borrower. The extra return is payment for those two differences — time and specificity — and for nothing else.
03 — The shape
How the return actually arrives
Most private lending arrangements pay interest periodically — commonly monthly — with the capital returned at the end of the term. That shape is why private lending is so often reached for by people who want income rather than growth: it produces a regular payment rather than a number on a statement.
Illustrative of the structure, not of any particular arrangement. Terms differ; ask what yours says.
Two consequences follow. The first is that the return is income and is taxed as interest rather than as a capital gain or a dividend. The second is that it stops: when the loan is repaid the arrangement ends, and capital that is not placed again is not earning.
04 — The other side
The handful of things that change the outcome
Since the return is repayment, the factors that matter are the ones that affect repayment. There are not many, and none of them is exotic.
| What it is | What it affects | |
|---|---|---|
| Repayment | Whether borrowers pay as agreed | Whether the interest arrives |
| Security | What stands behind the loan | What happens if they do not |
| Rates | Where prime sits over the term | What the rate is worth in real terms |
| Term | How long the capital is committed | When you can reach it |
| The administrator | Who runs the arrangement | Everything operational |
The last row is the one people underweight. A lending arrangement is only as orderly as the organisation administering it — the collection, the records, the enforcement when a borrower falls behind. Ask who that is, and what they are registered as.
05 — Where ProLend fits
Where ProLend fits
ProLend distributes private lending arrangements in South Africa. The lending is administered by BC Funding Solutions, a registered credit provider (NCRCP 11132, FSP 55147); ProLend is not the lender.
The calculators on this site model what a placement of a given size would produce at a given rate, so the mechanics above become a number you can look at rather than a description you have to picture. Figures are indicative and not an offer.