PRINCIPAL VS. NON-PRINCIPAL LENDERS: WHICH ARE BETTER?
28.08.18

I’m frequently asked to offer an opinion on the advantages that principal lenders might hold over non-principal providers, and vice-versa. It’s an interesting and thoroughly relevant topic given the rise of funding diversity in the booming bridging sector.

In my view the availability of new external funding was a primary factor in the rise of bridging following the financial crisis a decade ago. Frustrated by the lack of opportunity elsewhere, cash-rich investors were quick to notice the premium returns on offer through short-term real estate lending.

Deployed alongside more traditional methods of funding - such as equity - this has enabled a new and innovative generation of bridging providers to pump additional liquidity and resource into a sector that had barely changed for nigh on a century.

The incredible diversity we now see in funding models should, I believe, be welcomed. One of the principal reasons for the implosion of UK mortgage lending in 2008/9, both mainstream and specialist, was a too-heavy reliance on a single funding method. Whilst the securitisation model had many advantages a collapse in market confidence ensured its swift and, at the time, complete annihilation.

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

It’s important, too, that lenders continue to offer brokers ready-access to senior mandated decision-makers, as we do at Tuscan Capital. Too many institutional lenders, hindered by bureaucratic structures, have, I would contend, lost sight of this important consideration.

Scale and product innovation are two areas in which non-principal lenders can score over their privately-funded peers. This has allowed the rise of bridging ‘mega-lenders’, some of whom have gone on to achieve bank status. What’s important is that lenders reliant on external funding work with their investors to secure their lines for the long term and in a way that doesn’t hamper sensible commercial processes.

Those that succeed in doing so will not only help ensure the continuing rude health of bridging but will doubtless encourage others to join the party.

Colin Sanders
CEO, Tuscan Capital
August 2018