The rise of private lenders signifies a shift in the dynamics of commercial finance. Where traditional banks once held sway, private lenders now offer a viable alternative, particularly for small and medium-sized enterprises (SMEs) seeking capital swiftly and efficiently.
With an array of financing options, including bridging finance, development finance, commercial property, and working capital, private lenders are fast becoming the go-to choice for brokers needing a custom solution for their clients.
For brokers venturing into private lending for the first time, navigating this landscape can be daunting. With so many private lenders out there, finding the right one – and a reputable one – is critical.
Many brokers will have heard horror stories about instances where borrowers have been overcharged for valuations or offered a loan with the lender having no intention of funding it or – worse still – having seen clients charged interest for loans that never settled (due to the lender’s cost of ‘losing business’ etc). But the new face of private lending is one of professionalism and transparency.
Many private lending professionals – such as the ones included in this Broker’s Guide – have decades of experience in banking or broking and therefore know the exact frustrations that brokers face when trying to find a solution for their clients.
The experience and expertise brought to the table by the private lenders are a core attraction for brokers tired of the ‘brain drain’ at some of the bigger banks, where a lack of experience and a lack of delegated authority can result in lengthy and ultimately unsuccessful applications.
This professionalism is further underscored by the emphasis on professional standards schemes, reflecting a commitment to excellence and integrity in the industry.
As private lenders emerge as significant players in the field, brokers face the crucial task of choosing the right partner for their clients’ needs. The range of pricing and fee structures differ greatly from lender to lender so understanding good value will take time, but this is where the BDMs and credit teams come to the fore. The best private lender will be able to clearly and quickly answer questions relating to a scenario and unpack the fees and charges that the borrower may face along the way.
An added benefit is that most private lender BDMs will either have delegated authority or will provide direct access to the credit assessors and lending decision-makers. As such, brokers will be able to know then and there whether the deal they are working on ticks the right boxes for that lender’s credit appetite.
But the number one thing that nearly all private lenders will want to know first up is: what is the exit strategy? By having a clear exit strategy for how the loan is going to be repaid, any concerns relating to repayment can be allayed thereby speeding up the approvals process.
When choosing a private lender, brokers should consider several factors:
1. Source of capital: Understanding where a lender sources its capital is crucial. Brokers should inquire about the funding structure and ensure alignment with their clients’ needs and preferences.
2. Transparency and pricing: Clear and transparent pricing structures are essential to avoid hidden fees and unexpected costs. Brokers may wish to seek lenders who offer competitive rates and transparent terms but should always pay close attention to terms and conditions in case of hidden fees.
3. Access and communication: The ability to communicate directly with decision-makers and access timely support can be invaluable and make the difference when needing to settle a loan quickly.
4. Specialisation and expertise: Matching the lender’s expertise with the clients’ needs is paramount. Brokers should seek lenders with a proven track record in their clients’ industry or financing requirements. Ask your aggregator – or other brokers that may have used a private lender before – for their recommendations.
With increasing transparency, professionalism, and deep industry knowledge, the private lending sector is surely only going to grow in popularity with brokers and their clients alike.
