That’s because how a lender is funded, and by whom, not only affects how and what they can lend, it says a lot about their credibility.

Due diligence

What would you prefer – a lender funded by one private investor or one with multiple institutional and private funding lines from diverse sources?

It’s not a trick question and there’s no right or wrong answer.

When lenders are starting out, they usually begin with one funding line — they can offer great products and run a good business this way.

But as a lender starts to grow its business and product range, there are advantages to greater diversification of funding.

At Roma, we have nine funding lines from a wide range of sources, including:

• banks
• building societies
• HNW individuals
• our reserves in the business
• the British Business Bank
• a programme of loan notes funded by a pool of private investors

Smaller lenders sometimes have just one funder, while mid-sized firms and even larger ones tend to have maybe two or three funding lines and the advantages are significant — flexibility, security, the ability to scale and credibility.

Flexible product range

All funders have different risk appetites; some only want to fund straightforward bridging loans, but if you want a wider product range, you need backers who will support heavy refurbishment, ground-up developments or BTL.

Being reliant on one line for one product type, such as heavy refurbishment, means that if the funding gets pulled, so does the product.

Lenders with multiple funders have more flexibility to offer a broader range of products.

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If one of our funders decides they don’t want to do heavy refurbishment, for example, we still have plenty that will — so brokers and borrowers get that all-important certainty of funding.

Ability to scale up

When a lender has a single funding line, they can expand and grow — but it will happen incrementally and take time.

Those with multiple funding lines all growing at the same time have greater scope to grow their loan book both substantially and quickly.

Spread your risk

A diverse range of funding lines spreads your risk to give you extra security.

Having funders from different sources dilutes risk because banks, building societies and private investors all react differently to market conditions.

The world has had several black swan events in the last few years and different institutions have had very different responses.

Some are more conservative while others have embraced the opportunities and it’s good to have that mix.

Lender credibility

A lender’s funding arrangements reflect how the business is perceived by external parties who have done their due diligence and decided which businesses they want to back. 

Like brokers, funders want to partner with lenders with strong track records of customers redeeming and no bad debts, as well as those with whom they can build a good long-term relationship.

The funding markets are actually pretty small — we get a lot of potential new funding lines coming to us because of word-of-mouth recommendations from their peers.

How it affects brokers

This might feel a world away from the bridging loan rates on offer and how quickly your customer can get hold of funds, but a lender’s funding arrangement is worth paying attention to, because it impacts how they do business and therefore you and your customers.

Ask potential lender partners about it — the best will be more than happy to explain how they are funded, why it works for them and how it benefits their broker partners.