Lender finance, also called loan-on-loan or back leverage, is senior financing provided to a lender, secured by the loans that lender makes. A specialty lender—a bridge lender, an equipment finance company, a consumer or small-business lender—originates loans with its own equity and borrows against them from a facility like ours, so it can grow without raising new equity for every loan.
It is one of the most collateral-intensive forms of credit. The lender finance provider has two layers of protection: the originator’s equity in the pool, and the collateral behind every loan in it. It is our lender finance focus area.
How a facility works
- The originator places eligible loans into a special-purpose vehicle (SPV) or pledges them directly.
- The facility advances a percentage of the eligible balance—the advance rate.
- Payments on the underlying loans flow into a controlled account and are applied through a waterfall: fees and interest, then principal as required, then any excess back to the originator.
- As the originator makes new loans, it adds them and draws more, up to the facility limit.
Illustrative arithmetic
These numbers are illustrative only.
| Item | Amount |
|---|---|
| Pool of first-lien bridge loans | $80M |
| Ineligible loans (defaulted, over-concentrated) | $5M |
| Eligible balance | $75M |
| Illustrative advance rate | 70% |
| Availability | $52.5M |
| Originator’s equity in the eligible pool | $22.5M |
If the underlying loans themselves average 65% loan-to-value against real estate, the facility is advancing roughly 45% of the value of the real estate behind them (70% × 65%), before considering the originator’s other assets or guaranties.
Eligibility criteria
Eligibility criteria are where the facility’s risk is set. They define which loans count toward availability and typically address:
- Loan characteristics: maximum loan-to-value, minimum credit score or debt service coverage, maximum term, lien position, property or collateral type.
- Status: current on payments, not modified or in default, not subject to litigation.
- Documentation: a complete file with perfected security, title insurance where relevant and standard documents.
- Concentration limits: caps on any one borrower, geography, collateral type or loan size.
Eligibility criteria and concentration limits that keep the borrowing base clean are what we look for. The same logic as an ABL borrowing base applies; see the borrowing base explained.
Performance triggers
Lender finance facilities include tests on the pool that tighten the facility if performance deteriorates:
| Trigger | What it measures | Typical consequence |
|---|---|---|
| Delinquency | Share of the pool 30 or 60+ days past due | Lower advance rate or cash trap |
| Default and loss | Annualized defaults or net losses | Early amortization |
| Excess spread | Pool yield minus facility cost and losses | Cash trap |
| Originator covenants | Tangible net worth, liquidity, leverage of the originator | Event of default |
Early amortization means new draws stop and all collections go to repaying the facility. It is the lender finance equivalent of a cash sweep.
Underwriting the platform and the pool
We underwrite the platform and the pool separately, so that each protects us from the other.
The platform. Who runs it, how long the team has been lending, its credit policy and how consistently it is followed, its servicing capability, its own capital and liquidity, and its funding sources. A good pool can be ruined by a platform that runs out of money or stops servicing.
The pool. Historical performance by vintage (static pool data), loss severities on defaulted loans, the collateral behind each loan and how it was valued. We test a sample of loan files directly.
Experienced originators with disciplined credit policies and transparent servicing data, making loans secured by real or financial assets we understand, fit best.
Step-in rights and backup servicing
If the originator fails, someone has to keep collecting the loans. Facilities typically provide for a backup servicer, the lender’s right to replace the servicer, and the right to step in if performance deteriorates. Advance rates set against the underlying collateral, eligibility tests on every loan, regular reporting and the right to step in are how we manage risk here.
Why specialty lenders use it
- To grow lending capacity without issuing equity.
- To match funding to assets: a revolving facility for a revolving book.
- To replace a bank line that has shrunk or become restrictive.
- To bridge to a securitization or forward-flow arrangement once the platform is larger.
Red flags
- Little or no historical data on the pool, or data that is aggregated and cannot be tested.
- Frequent modifications or extensions that keep loans looking current.
- An originator whose own balance sheet is thin, or which depends on one funding source.
- Credit policy exceptions that have become the rule.
- Underlying collateral that the facility lender could not value or service itself.
What to send
The originator’s credit policy, servicing procedures, performance data for the pool (ideally by vintage), a loan tape, financial statements for the platform and the published essentials: executive summary, schedule of collateral, sponsor bio and sources and uses. See how to request a loan and the example of Project Ledger, a facility for a bridge lender. Back to the chapter overview.
This entry is general information as of November 2026, not investment, legal or tax advice, and not an offer of securities.