Traditional lending lines vs. modern ones

Traditional lending lines vs. modern ones



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As we slowly make our way out of recession, concern is growing over banks’ continued reluctance to lend.  

However, in their lending report released on 24 March this year, Lloyds TSB announced plans to lend £67 billion, (excluding remortgages), to UK businesses and homeowners over the next 12 months, maintaining they have lent more last year than ever before.
 
Yet traditional lending lines are still said to be dried up and, as a result, short term lenders looking to keep their funding lines intact are being forced to seek out alternative means of doing so.
 
Head of Bridging at United Trust Bank, Alan Margolis commented: “It is my understanding that bank funding lines are proving increasingly difficult to come by and, as they are a vital component of many lenders' funding structures, the failure of banks to either provide new lines or renew existing ones is bound to have an impact on the bridging sector.
 
“It would be a shame to see good lenders, who have otherwise survived a very difficult two years,  forced to curtail lending or even in the most extreme cases, cease trading, due to the lack of wholesale funders' willingness to provide funding, to what is an increasingly vibrant sector.”
 
The concerns come at an uncertain time for bridging finance. Whilst the industry shows positive signs of recovery, the recession has already felled a number of firms, the latest being commercial bridging lenders Mathon and Excel Securities both of whom have gone into administration.
 
Private money sources are therefore playing an increasingly prominent role as the sector starts to recover and lenders prepare to open their loan books again. 
 
Christian Faes, Managing Director of Montello Private Finance said: “Mainstream banks have more rigid lending criteria than most private finance providers. So private finance has a particular advantage in the current market because there are no rigid requirements that we must adhere to as part of our underwriting criteria – and often this allows us to take a more commercial view on a transaction.
 
Indeed, rather than going to the more traditional lending lines, Montello funds its transactions through alternative capital sources, such as high net worth investors and hedge funds.
 
“These funders are generally not in the business of lending day-to-day, but are attracted by the returns and the sound investment proposition (given the property market stabilising etc). As such, investors are able to gain exposure to bridging finance as an investment class,” Faes added.
 
Ray Cohen, compliance expert and associate ASTL member, warns of an influx of alternative lenders, such as hedge fund trying to infiltrate the market. Cohen said: “Hedge Funds are starting to see the appeal of the bridging sector in the current low yield environment, but they need to find the right people to front it if they are to make it work for them. This may be easier said than done.”

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