The Real Risks of Private Lending in Costa Rica, and How to Reduce Them

Any page that describes lending without naming what can go wrong is selling rather than explaining. So here is the list, in the order the risks actually matter, along with what reduces each one.

1. The borrower stops paying

The obvious one, and the least dangerous when the file was built properly. Most missed payments are timing rather than collapse and resolve with a phone call; that is what late-payment interest is for, and it exists to make delay expensive rather than to earn money.

When it becomes something more, the lender can begin enforcement against the registered security, choosing the timing and the attorney. What reduces this risk is not optimism about the borrower — it is the cushion between the loan and the property’s value, decided before the money moves.

2. The property is worth less than the file says

Quieter and more damaging. If the valuation was generous, every ratio built on it was wrong from the start.

What reduces it: a professional appraisal against comparable sales, a healthy margin below that figure, and suspicion of any file where the value is asserted rather than evidenced.

3. Enforcement takes longer than you planned for

This is the risk newcomers underestimate most. Even with a clean first-position lien and an obliging court, recovery is measured in months, not weeks — and through that period the loan is producing nothing.

What reduces it: a wider cushion, so the delay costs time rather than principal, and never lending money you might need before maturity. A lender under pressure accepts whatever exit is available.

4. Something is wrong with the paperwork

An undisclosed lien ahead of yours, an annotation nobody read, an owning company whose books are lapsed or whose signatory no longer holds authority. Any of these can leave your security weaker than you believed.

What reduces it: the Registry study, done properly, plus verification of the owning entity. It is the least glamorous work on a file and the most load-bearing. This is what the document list is for.

5. Your capital is committed

Not a failure — a feature, but one people forget they accepted. The money is locked until maturity, and a loan is not a savings account. What reduces the pain: staggering maturities across several loans so a portion frees up periodically, and keeping a separate liquid reserve outside anything lent.

6. Concentration

One large loan means one borrower, one property, one market and one set of documents carrying your entire outcome. Several medium loans mean a bad file is an inconvenience instead of a disaster. Most experienced lenders here reach this conclusion within their first year, and it costs nothing to reach it beforehand.

7. The risk nobody prices: the wrong counterparty

Everything above assumes a real transaction with a registered asset behind it. The failure that actually wipes people out is a different one — handing money to a structure where no identifiable asset exists at all. If you cannot name the property standing behind your money, none of the other six risks are the one to worry about.

What is not a way to reduce risk

Two things get mistaken for safety. A higher interest rate does not compensate for a weak file — it is the market telling you the file is weak. And a guarantee, from anyone, is not security; only a registered lien is.

Two risks that get overstated

Expropriation. Newcomers sometimes arrive worried that property can simply be taken. Costa Rica records ownership at the National Registry and has done so for a long time, and this is not a live concern for ordinary titled property. The real title risks are mundane: an uncancelled old lien, an annotation nobody read, a company whose books lapsed.

Currency. Loans here are written in dollars, so a colón-denominated worry does not apply to the instrument. The place currency does show up is indirect — a borrower whose income is in colones servicing a dollar loan carries an exposure you did not sign up for, which is worth noticing in the file.

A short checklist

Before committing on any file: the appraisal is professional and recent; the loan sits comfortably below it; your lien registers first; the Registry study is clean and you have read it, not just been told about it; the owning entity checks out if a company holds title; the exit is a named event with a date attached; and the money is capital you can leave alone until maturity.

Seven lines. A file that clears all seven is not risk-free, but every risk it carries is one you chose knowingly, which is the most any lender can arrange.

There is an eighth risk that sits outside this list because it does not arrive as a file at all: a request from a friend or a family member. Nothing above applies to it — no registered lien, no appraisal, no exit — and it is the one most likely to be said yes to.

Also worth saying plainly: nobody monitors your loan after closing. GAP prepares the file and coordinates the closing, and that work ends there — the borrower pays you directly. We stay available, and most lenders call us, but the loan is yours.

Article by Glenn Tellier (Founder of CRIE and Grupo Gap)