“Unequivocally false” – this is what Matthew Porch, head of distribution at Aquamore, replied when asked whether private lending is only for borrowers with bad credit.
The topic was the first to be tackled in Aquamore’s “myth-busting” educational series, which was designed to address common misconceptions.
“Private lending is an evolving market which has well and truly moved past its origins of being a ‘bottom drawer’ deal provider for borrowers with well-significant bad credit,” Porch said.
Watch now: Private lending: The truths behind the myths
This raises an interesting question here though: just what is now considered “bad credit”?
Porch said lenders’ perception of a borrower’s credit profile has evolved, and the term “impaired” has changed drastically.
“Back in the day when the alternative finance sectors started to gain momentum in the early 2000s, it was often a time of loose assessment and sky-high interest rates when borrowers with a truly bad credit profile could obtain ‘lender of last resort’ funding,” he said.
But the levels of impairment, as well as the sector, have considerably matured since then.
“What was a ‘bank deal’ a year ago is often not the case today,” Porch said. “Similarly, the level of sophistication, funding structures, and associated compliance is now drastically different. This is particularly the case for private lenders with institutional warehouse funding as we not only have a responsibility to the borrower but a high degree of accountability to the warehouse provider.”
He said there is also a need to raise the corresponding metrics to assess credit.
“The traditional metrics to assess credit are very rigid and continue to tighten in the mainstream lending sector,” Porch said. “Conversely, private lenders are renowned for taking a completely different approach.”
In the case of Aquamore, the private lender applies a judgemental credit approach to all applications, enabling it to provide solution-focused commercial finance solutions.
“In real terms, we understand that running a small business is never easy, and there’s a backstory for every business – which is why we’re more invested in the future performance indicators versus categorically rejecting the application because of a default, late payment, etc,” Porch said.
“On this note, our main priority is that the funds will support business growth without placing additional strain on the business – which is why we also provide the option of capitalised interest.”
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