The funding model each bridger utilises can affect how their lending business operates, particularly in terms of criteria and security used. Understanding these models offers brokers added insight into the inner workings of the lending business and can help them grasp the motivations behind a firm’s lending practices.

Mark Abrahams, the CEO of West One Loans, is responsible for spearheading the lender’s funding needs. He tells us exactly how high net worth individuals and small companies are able to take the opportunity to invest in short term secured loans…

With approximately 160 private investors, West One Loans has such a wide variety of investors that it has enabled us to complete a broad range of secured short term loans in both the residential and commercial property space.

All of our loans are syndicated through our FSA-authorised Unregulated Collective Investment Scheme (UCIS), enabling those investors with adequate expertise and experience to take advantage of the mainstream banks’ notable absence.

West One Loans hold the property charge given against the loan at the Land Registry in trust for those particular investors participating in each loan. Loans are separately ring fenced from each other, and each investor ranks on a pari-passu basis with each other. Investors earn the return of a particular loan on a pro rata basis according to the percentage of the overall loan that they represent.

There are no hidden costs or membership fees for being part of this 'investor club' and participating investors in a specific loan will receive 75 per cent of all interest received. The remaining 25 per cent is West One Loans’ management fee. The interest is paid monthly net of the management fee and without any withholding tax.

The simplicity of our funding model means that there is always a type of loan that suits somebody.

For example, higher quality first charge loans attract those private investors who are looking first and foremost at the quality of the loan rather than the net return. Others look to maximise yield and prefer the higher monthly interest returns for the additional risk that may apply to that loan.

Investors never need to commit capital until the loans are ready to fund and almost always look to re-invest this capital once a loan has redeemed.

Our investors have built up sizeable portfolios of loans over the last three to four years and achieved sensible diversification secured on a broad range of properties, locations, loan to values and a combination of first and second charges.

Our investors achieve circa one per cent return per month (net of West One’s management fee) and are paid interest monthly, giving them a very steady stream of income.

More importantly, all our investors get to choose the loans that they go into before they are funded. They decide on the amount they wish to fund and how to fund it. For example, they may invest through a limited company or perhaps through their SIPP, a child trust fund or simply in their spouse’s name to minimise their personal tax).

Our investors know that West One do not have a continuous need to fund loans that they feel represent too high a risk, unlike certain funds who simply must deploy capital in order to pay their quarterly returns to their investors, with less concern for the principle risk.

Simply put, West One does not need to take unnecessary risk or stretch the boundaries in areas such as the type of security acceptable as collateral or lending for credit repair where the borrower has little prospect of repaying.

West One is not a deposit taker or a fund but a facilitator of capital between lenders and borrowers, at a time when the former are desperate for a decent return on their cash. The latter are grateful to tap into a reliable and plentiful source of private money without having to give away equity in a deal and perhaps avoid onerous early redemption penalties for paying money back early. Investors consider us at the cutting edge of peer to peer lending.