Blenders
Blending the rule
With money tight and risk appetite low brokers are fi nding entrepreneurial ways to plug the fi nance gap. Sarah Davidson reports
Blending can be good and bad. it can help you survive in the wild or it can mean you stop standing out from the crowd. in the bridging market blending is taking on new signifi cance. A blender is a broker who does a bit of lending on the side. A broker-lender or blender. I hear you muttering in confusion: a broker who is also a lender – how does that work? despite some obvious confl icts there are those in the market who argue it can work. but equally there are people who say it’s too hard to manage. brokers should stick to being brokers and lenders to lending.
What the market means by blender is also a moveable feast. There are brokers who white label for lenders, brokers who lend their own cash and brokers who act as a conduit for wealthy private investors.
Anecdotally there are also
brokers who say they lend, charge fees up front and then fail to deliver the funding, making a tidy profi t in the process – something proponents of the “professional bridging market” try to gloss over. blending in every guise is only feasible on unregulated loans and is therefore outside the bonds of regulation - to that extent it’s perfectly legal. in many instances
6 bridging introducer MAY 2012
it can make a lot of sense: brokers and ex-brokers familiar with the sector can put wealthy individuals with a bucket of cash in touch with investors needing a bridge. The result is more often than not a good return for both parties and a slice of commission for the middleman. Similarly some of the larger distributors have built up enough capital on their own balance sheets to warrant a limited investment in the sector themselves.
it seems there is no fi xed way of going about it. bridging packager enterprise Finance for example has a seven fi gure funding pot on its balance sheet and at any one time has between 10 and 15 loans on its own book. danny Waters, chief executive at enterprise, says it comes down to the amount of cash he has to spare at any one time and the mix of business he has lent on. “This isn’t a new thing for us,”
he says. “We’ve been lending our own capital for 10 years although more recently the way we have chosen to do that has shifted. now we look at the balance of business we have our cash on loan to and if a deal looks good then we may lend to that borrower directly.” Pre-credit crunch Waters
explains that enterprise would
stump up a proportion of the loan agreed for a borrower with another lender and then reap a corresponding proportion of the interest earned. the idea was Enterprise had some skin in the game giving lenders reassurance. “We don’t do that type of vertical integration anymore,” says Waters. “now we lend the whole loan from our retained profi ts so it’s not a big part of our business by any means. but we won’t do mezzanine top up loans. We don’t want to be exposed to anyone else’s risk.” Waters’ model of blending is
very much based on experience and a good knowledge of what makes a deal worth doing. He’ll lend up to 70% LTV at rates usually between 1% and 1.2% a month. but brokers thinking about tapping Waters up for deals should think again, he warns. “Our loan book is maybe 15 cases tops. if you put that next to the leading lender in the bridging space’s loan book of £250m, you can appreciate how tiny this is for us.”
TOP UP FINANCE
Doing whole loans is likely to be out of reach of most distributors using their own balance sheet capital to fund lending. enterprise is one of the largest packagers
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