The line of distinction between principal and non-principal lenders has become 'blurred'

The line of distinction between a principal and non-principal lender has become blurred, according to one bridging finance provider.

In an article earlier this year by Bridging & Commercial, one industry expert claimed that smaller lenders tended to be “more agile” than their larger counterparts.

In another article, a specialist finance broker claimed that there were only a “very limited” number of bridging lenders who could genuinely offer more than 70% LTV, and it was suggested that there were fewer, smaller, more nimble lenders with private funding than there used to be.

Principal vs non-principal lenders

“A lender relying upon [its] own funds, as we do at Aspen, has both the ability to stay in the game in an economic downturn and to take sensible decisions that do not fit neatly into pre-determined boxes,” said Jack Coombs, director at Aspen Bridging.

“Sensible, but creative, underwriting is simply harder for those lenders with funding lines to maintain and credit committees to navigate.”

Jonathan Sealey, CEO at Hope Capital, felt that while all firms had differing amounts of flexibility in their structures, principal lenders could be more flexible and could usually react quicker.

“A principal lender can often provide a more definitive decision in principal, too, where yes really does mean yes.

“As long as all the initial information received is correct, then there is no reason for a principal lender to change their mind or renege on a deal at the last minute. 

“Non-principal lenders on the other hand, could find themselves in a situation where they believe they can accept a case, only to find after it has been to their external credit committee, that another person decides the case is too high a risk and they cannot lend on it after all.”

Vincent Bull, managing director at VATBRIDGE, added: “Removing the need to refer decisions up the line for approval provides more flexibility and improves response times.”

Shahil Kotecha, CEO and principal at Pivot, felt flexibility came down to who was actually controlling the funds that were being lent out.

“The line of distinction between a principal and non-principal lender has become blurred.

“Often lenders will say they are lending their own funds when, in reality, their debt-type agreements [are] sitting behind their equity.

“You can have a balance sheet lender who has multiple layers of governance leading to inflexibility and inversely you can have an experienced non-principal lender with a remit to have flexibility around the funds they deploy.”

Andy Georgiou, BDM for north London at London Credit, felt there were a lot fewer true principal lenders than people might have thought.

“Many bridging lenders call themselves principal lenders but, in reality, the extent to which their own money is being lent is limited. 

“Lenders’ desire to expand facilitates the need to look for alternative funding lines, [and] – [although] their own money is involved – results in an amalgamation of sourced funds.”

Colin Sanders, CEO at Tuscan Capital, felt the diversity of funding models should be welcomed.

“Bridging is more secure as a market proposition because of its funding diversity.

“While it might often hold true that privately-funded principal lenders can move more swiftly when making lending decisions, this isn’t the whole story.

“Speed can be important, but I would argue that decision-making consistency and funding reliability are equally so.”

Avamore is a principal lender which has institutional funding relationships and its principal, Michael Dean, said it had complete control over the decision-making process.

“…Ultimately the deal only needs to be underwritten once with a principal lender but, with a non-principal lender, deals need to be underwritten and then reviewed by their funders.

“Non-principal lenders can only become more flexible by sourcing new funding partners or putting pressure on existing partners to offer greater flexibility on the lending parameters and credit criteria.”

What do brokers think?

Geoff Wilson, managing director at White Rose Finance Group, said flexibility was dependent on the securitisation process and chain of command which sits behind the non-principal lender.

“I think it's fair to say that non-principal lenders who have true autonomy in the way they operate and underwrite deals and have guaranteed funds available should be able to compete successfully.

“The lender needs to be able to see beyond the standard LTV ratio and look at the wider merits of the deal and the overall factors that make it a sensible lend.

“Non-principal lenders that can deliver this will, again, compete favourably.”

Zed Lorgat, practice principal at JM Financial, believed that non-principal lenders could be more flexible so long as they weren’t setting just one preliminary style or type of lending.

“You may find that if a principal lender doesn’t feel that they are bringing [in] enough business, then they may start to take a view on certain things, [although], in reality, this is very unlikely as the lending criteria is set rigid.

“Were they to add their own capital funds and join up with say, a lender/fund who has a credit line, there is a chance of a more flexible decision, possibly.”

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Ashley Beddows