The source that alternative lenders use to fund their loan book may have a considerable influence on how your deal is made. From determining how quickly a loan can be written to the flexibility offered throughout the term, the funding line has the potential to affect a number of aspects of your deal. There are three main lines lenders will receive funding from, these include: banks, private investors and internal principal funds.

It is essential you are able to advise your client of the most appropriate lender given their specific requirements. The key benefits and drawbacks of sourcing a lender funded by bank lines or independent funds are outlined below by three of the leading bridging lenders.

The differences between funding streams

Jonathan Rubins, Managing Director at Alternative Bridging Corporation, highlights the benefits of obtaining loans from bank funded lenders. He said: “Funds from bank lines are usually cheaper for the lender so these savings can be passed down to the client because loans can be issued at a lower rate. However, banks will often have a substantial say-so in how the money is lent.”

The influence of the bank may affect numerous aspects of your deal, as Martin Kearns, Head of Strategic Policy at Tiuta, explains: “Bank-funded facilities tend to be more restrictive in terms of LTV and can also focus on the need for reporting of management information (MI) to prescribed bank criteria. Covenants spelling out precisely what MI is needed and reporting times mean that the administration of these facilities needs to be carefully managed.”

Martin explains that private funds operate slightly differently. He said: “While the MI is still required, the presentation is usually agreed by both parties and tends to be less onerous than the banks and their parent groups.  Decisions on facilities generally happen faster and the criteria is less restrictive.”

Jonathan added that privately invested funds lend themselves very well to the nature of bridging finance. He said that private funds will have less top-down influence and provide great benefits to your client due to the flexibility of this offering and speed at which the funds can be issued.

Further adding to the benefits of private funding, Martin said: “Generally speaking, private lenders can offer higher facilities and higher individual loan amounts.”

The rate of return expected from private investors is typically higher (to reflect their personal risk) and as such the cost of borrowing to the lender tends to be higher to reflect this.”

However, both Jonathan and Martin stress that private investors expect a much higher return on their cash to reflect their personal risk invested in the transaction. This means the rate at which these lenders can offer these funds will usually be more than from a bank.

We also spoke to James Bloom, CEO at Regentsmead Limited, which is principally funded by its own internal resources, who explained how principal funds allow for a more bespoke product offering.

He said: “The flexibility of lending our own funds allows us to make immediate changes without recourse to third parties. The speed in which we operate is also a testament to the benefits of lending our own funds; we do not have large credit committees or reporting to do to approve a loan.”

In addition, James describes principal lines as offering “a very strong, safe position for brokers, as there is no danger of funds being withdrawn just before completion or worse during a build project.” He also added that lenders funded internally like Regentsmead are able to make immediate changes without having to consult with third parties.

Yet Jonathan does emphasise the effects of the banking crisis upon bridging lenders: “Bank lines are becoming increasingly scarce. The downside of this is that lenders have fewer funds they are able to lend at low rates.”

However, as illustrated by the below table, most lenders will have a mixture of bank and private funding lines, so lenders will draw upon the most relevant source depending on the particular requirements of each specific case.

Which lenders are privately funded and which have bank lines?

Alternative Bridging Corporation Limited - Private & Bank lines

Blemain Finance - Own funds, syndication and securitisation

Bridging Finance Solutions - variable subject to requirements

BridgeBank Capital - Private & Institutional funds

Cheshire Mortgage Corporation - Own funds, syndication and securitisation

Cheval - Bank and Shareholder funding

Dragonfly Property Finance - Varied (in excess of £250m)

FinCorp Finance and Credit Ltd - Principal lender

First Merchant Finance Plc - Private

Golden Tree Asset Management - Betfred Bookmakers & other private funds

Hampshire Trust - Fully funded by retail deposits

Lancashire Mortgage Corporation - Own funds, syndication and securitisation

Masthaven Bridging Finance - William Peirs Group & bank lines

Mayfair Bridging - Bank & private funds

Montello Bridging Finance - Montello Income Fund & bank funds

MT Finance – Entirely private

Omni Capital - Principal line CPC Group (Candy Brothers) & secondary  line Cheyne Capital Management (UK) LLP

Precise Mortgages - Elliots (US Bank)

Regentsmead Limited - Internally funded

Tiuta Plc - Connaught Asset Management, UK High St & International lenders

United Trust Bank - Bank

West One Loans - Privately Funded