Why Banks Refer Borrowers to Private Lenders in Costa Rica

It sounds like a contradiction. If a borrower is solid, why would a bank hand them to somebody else? Because banks decline on criteria, not on quality, and in Costa Rica several of those criteria have nothing to do with whether the person will repay.

Understanding which ones is the fastest route to understanding why this market exists and who is on the other side of your loan.

Reason one: residency

The largest by a distance. Bank credit here requires permanent residency, and reaching permanent residency takes four years at minimum. Somebody who arrived last year with a paid-off house and provable income is not a marginal applicant — they are outside the system entirely, and no amount of equity changes that until the clock runs out.

These are people who at home would have arranged a loan over an afternoon. Here they cannot, and that is the whole reason they are willing to pay a private rate.

Reason two: the calendar

Bank approval runs on its own schedule, and plenty of transactions do not. A purchase with a deadline, a business opportunity with a window, a contractor who has to be paid before the rainy season. A borrower who needs an answer in three weeks cannot use a process that takes four months, even when the answer would eventually have been yes.

Reason three: the property does not fit the box

Banks prefer conventional, finished, easily valued property in established areas. Land without services, a half-completed build, a farm, a mixed-use building, an unusual property with few comparables — all of these can be perfectly good security and still fall outside a lending policy written for houses.

A private lender can look at the asset itself and decide. That flexibility is the product, and it is priced through the loan-to-value ratio rather than through a policy manual.

Reason four: how the income arrives

Self-employment, rental income, a business abroad, earnings in a currency that is not colones or dollars. Income can be entirely real and still fail to present in the format a bank underwriter needs. The applicant is not being judged unreliable; their paperwork simply does not match the form.

Reason five: the amount or the term

Some requests are too small to be worth a bank’s process and too large for anything unsecured. Others are deliberately short — a bridge for eighteen months while a sale completes — and short terms sit awkwardly with products designed for fifteen years.

What this means when you read a file

The useful question is never why did the bank say no on its own. It is which of these reasons applies here. A residency decline and a decline for undisclosed debts are entirely different files that arrive looking identical.

That is what the document review is for: establishing which one you are looking at before anything is decided. The assumption that a declined borrower is a weak borrower is the most expensive misreading in this market — expensive because it makes people walk away from the good files and, occasionally, feel relaxed about the bad ones.

And the rate comparison

One more thing worth knowing, since it comes up in every conversation. The rates banks here quote foreign applicants are closer to private rates than most people expect. The distance between the two options is smaller than the framing suggests, and what the borrower is really buying is speed and access rather than a cheap rate they were otherwise going to get.

How a declined file actually reaches a private lender

Rarely as a formal referral on letterhead. More often the borrower is told, politely, that the application cannot proceed, and someone in the room — the attorney, the real estate agent, the accountant — mentions that private financing exists.

By the time such a borrower appears, they have usually spent weeks on a process that was never going to conclude, and they arrive better prepared than most: documents assembled, valuation done, and no illusions about what they are being offered. That preparation is one of the quieter advantages of this segment.

What the borrower does next

For many, the private loan is explicitly temporary. The residency application keeps moving, permanent status eventually arrives, and the bank route opens. Refinancing to a bank is then both possible and, at that point, cheaper.

This is why terms of six months to three years fit the market so precisely — a good number of these loans are bridges across a waiting period with a known end. When a file names that as its exit, the thing to verify is the state of the application rather than the borrower’s optimism about it.

Here is how the two sides of that market find each other.

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