In short
There is no market to sell a private loan into, no redemption, and no surrender value. Once the money is out, it comes back when the loan says it does — and lesson six established that the date is when it becomes due, not when it arrives.
Worse, the liquidity runs one way. Where the National Credit Act applies, the borrower may settle at any time, with or without notice, and may prepay any amount without penalty. So the term is a ceiling for you and an option for them.
01Why there is no exit
Three things a liquid instrument has, and a private loan has none of them.
| A liquid instrument | A private loan | |
|---|---|---|
| A market | Buyers and sellers, with prices | Nobody is bidding for your loan |
| A provider | Someone obliged to redeem it | A borrower obliged to repay on terms, and nothing else |
| A price | Quoted, continuously | Face value, or whatever a buyer would pay, and there is no buyer |
You can sometimes sell a loan privately. It needs a willing buyer, a valid cession, and usually a discount — and the moment you need to sell is the moment the discount is worst. Treat it as something that may be possible, never as an exit.
02The asymmetry
This is the part lenders are most often surprised by, and it is a statutory right rather than a negotiating position.
- A borrower or guarantor may settle the agreement at any time, with or without advance notice to the credit provider.
- A borrower may prepay any amount owed at any time, without notice and without penalty.
Where the Act does not apply — much lending to juristic borrowers — the position is whatever the agreement says, and a lock-in or a break fee can be negotiated. That is one of the few respects in which being outside the Act favours a lender.
03So the risk sits at both ends
Illiquidity is usually described as one risk. It is two, and they pull in opposite directions.
| If the borrower… | You get | The problem |
|---|---|---|
| Runs the full term | The interest you expected | Your money was committed the whole time |
| Settles early | Your capital back, and less interest | Capital sitting idle, and a new loan to find |
| Pays late | The interest, eventually | Neither income nor capital, for an unknown period |
| Does not pay | A recovery process | Everything in lesson nine |
Only the first row is the one most lenders plan for. The other three are not unusual outcomes — they are ordinary ones, and a lender whose plan only survives row one does not have a plan.
04The cost nobody counts
Capital between loans earns nothing. The gaps are longer than people expect, because finding a loan you are willing to make is harder than finding a loan.
Suppose you lend R500 000 at 18% and the loan runs nine months, then it takes three months to place the money again. You earned nine months of interest on a year of committed capital. That is 13.5% on the year, before anything else — and nothing went wrong.
Lesson thirteen takes that further, along with the other three things that sit between a quoted rate and what reaches you.
05What actually helps
- Do not lend money you might need. This is the only real mitigation and there is no substitute for it. Emergency money does not belong here.
- Keep a reserve elsewhere, liquid, in something dull. It is what makes the illiquid part survivable, and it is also what lets you fund an enforcement if you ever have to.
- Stagger your loans so everything does not fall due in the same quarter — which is the timing concentration from lesson eleven.
- Ask for the earliest realistic date, not the term. The question is when would you actually expect my capital back, and what has to happen first?
Next: what you actually earn, after everything.