Launching a debt fund sounds simple enough, right?
Raise some money, lend it out, make returns, but if you don't
set the structure up exactly right, legally, financially and
with investors trust that dream can collapse fast. So let's walk
through how to build a fund that lasts and scales. I'm Tilden
Moschetti, founder of Moschetti Syndication Law. I help fund
managers and syndicators set up bulletproof structures that
protects them legally and keeps their investors happy. Today I'm
going to show you exactly what you need to know to build a debt
fund the right way from the first dollar to your first
distribution.
When people hear debt fund, they usually imagine something
complicated, but the concept itself is simple. You're raising
money in order to lend it out. That's it. Instead of owning an
asset like an apartment building, your fund acts more
like a private bank giving out loans to qualified borrowers.
Your investors don't want speculative returns. They want
predictable, contractual income and debt. Funds can lend into
many spaces, real estate, bridge loans, small business,
expansion, acquisition financing, even litigation
finance. But knowing what a debt fund is naturally leads to the
next question, how do you legally and structurally protect
yourself while you're running it? Well, your first real step
is building that entity that owns and operates the fund.
Usually it's either an LLC, giving you tax flexibility and
easy management, or a limited partnership, great for setting
up clear manager versus investor roles. If you pick wrong and
it's just not a tax headache, you could be personally liable
if a borrower sues or if an investor feels misled. Choosing
the right entity isn't glamorous. It won't impress your
investors, but it's absolutely foundational for everything
you're going to do next, because once your legal shell is built,
it's time to figure out how the money inside it will flow. If
your entity is the house, your financial structure is the
plumbing, you'll need to know what interest rate you're
charging the borrowers. Is it fixed? Is it adjustable? Are you
adding origination or servicing fees? How often are you paying
distributions to your investors, monthly, quarterly, and are you
realistic about cash flow? Remember, borrowers might pay
late. Investors don't like hearing sorry the check's late
too. Planning your fees, your payouts, your reserve policies
right now isn't just smart, it builds the system your investors
will rely on later, and once the financial flow is designed, the
next job is making sure you stay compliant while moving that
money. So let's be crystal clear, when you're taking
outside money, you're in securities law territory, almost
every debt fund will rely on Regulation D, usually 506 B, or
506 C, 506 B, if you're raising privately through existing
relationships, or 506 C, if you want to advertise to the world
but only take in credited investors, whichever path You
pick, you must file your form D with the SEC handle State Blue
Sky filings wherever your investors live, you see,
compliance isn't an afterthought. It's the guard
rails that keeps your fund alive, and part of compliance
and building credibility is showing investors everything
clearly before they write that first check, here's where you
set the tone for your fund, your documents, your private
placement memorandum, or ppm, spells out every risk, every
fee, every promise you're making and not making. Your operating
agreement explains how decisions get made. Good documents don't
just protect you from lawsuits. They show investors that you are
serious, that you are professional, and you know
exactly what you're doing, because once those documents are
signed and investors come in, the real job starts managing
relationships. Investors don't just want returns, they want
communication. So set expectations early. What
payments to expect, how often updates will come, what happens
if things don't go exactly to plan? Just be clear. Be
consistent. Be transparent. Good Returns. Build loyalty.
But good communication builds something even more valuable,
reputation, and speaking of protecting your reputation,
nothing does that better than managing risk from day one, no
loan is bulletproof. Borrowers default, market shift, stuff
happens. Smart managers keep conservative loan to value
ratios, diversify across multiple borrowers, industries
and geographies have clear plans ready for loan workouts and
recoveries. Risk Management isn't what gets you the first
investor check, but it's what keeps you from losing the next
10 investors. Which brings us to the most important lesson, most
mistakes aren't flashy. They're basic, using bad templates for
legal documents, advertising improperly without choosing the
right Reg D path over promising guaranteed returns, LAX
underwriting that brings in risky loans. When you're
building a fund, it's easy to think you can clear things up
later. Don't set it upright today, and you'll avoid massive
headaches tomorrow. Debt funds aren't complicated, but getting
them right requires you to build on solid foundations, legal,
financial and relational. If you want help setting up a debt fund
that attracts investors, protects you and grows the right
way, reach out to us. I'm Tilden Moschetti, thanks for joining me
now go and build something that lasts you.