Lending Series | Part 4: Lender Finance
After a brief pause from our lending vertical series, we’re back — and this week, we’re diving into one of the more technical but quietly powerful components of our strategy: Lender Finance.
Lender Finance doesn’t always get the spotlight, but it’s foundational for us. It’s where structured credit meets real-world lending platforms—and where our ability to understand complex loan portfolios becomes a meaningful source of return and downside protection for our investors.
Speaking personally, this is a vertical I’ve grown increasingly passionate about. Having spent years in roles that involved lending to other lenders, I’ve seen firsthand how nuanced and rewarding this type of credit can be. It’s a space that demands structure, discipline, and deep understanding, and I’m proud to be part of a team that delivers all three at scale.
What Is Lender Finance?
At its core, Lender Finance is the provision of revolving lines of credit secured by the loan portfolios of finance companies. These platforms lend to businesses and consumers, merchant cash advances, mortgages and short-term secured personal loans.
Instead of underwriting a single borrower, we’re underwriting the lender and their entire portfolio of loans. We focus on mid-sized U.S. and Canadian finance companies, typically with portfolios between $10 million and $100 million, seeking a flexible alternative to traditional bank capital.
The result is a well-secured, diversified credit exposure backed by tangible assets and real cash flows, often with stronger covenants and more robust structures than what’s available in public markets.
Our Approach
At Garrington, we’ve originated, underwritten, and managed lender finance transactions through our dedicated team — understanding the nuances of underwriting not just a business but also the borrowers behind the company.
We typically lend between 60% and 80% against the lender’s funds employed in their portfolio, comprising loans with similar advance rates. In other words, we’re lending against portfolios already structured with strong collateral protection.
A few examples of lenders we support include:
- Auto finance and leasing firms
- Merchant cash advance platforms
- Small business and consumer loan originators
- Residential mortgage lenders
- Home improvement finance platforms.
These are experienced platforms, not startups. We partner with operators who know how to manage risk, maintain liquidity, and navigate borrower performance through cycles.
Risk Structure: Built for Resilience
Capital stack matters — especially in lender finance.
We secure first-lien senior positions and require borrowers to contribute meaningful first-loss capital, often through a combination of their equity and underlying borrower exposure. For example:
- In a lender finance loan at 75% LTV of funds deployed, our senior capital may represent an effective 60% LTV, with our client contributing 20% and the remaining 20% covered by the underlying borrower’s.
- Our client not only aligns incentives but also buffers investor capital against unexpected losses.
And if the loan portfolio starts to underperform, we maintain the tools—from dominion of cash to real-time reporting, to intervene quickly and decisively.
Why It Works
Lender Finance allows us to reach deep into the credit ecosystem — funding platforms that serve a wide range of borrowers — without taking on the full risk of a single borrower or asset class. It’s a strategy that offers:
- Diversification across loan types and geographies.
- Transparency through real-time performance tracking.
- Control via tight collateral and covenant packages.
- Consistent income from senior secured positions with defined advance rates.
Most importantly, it’s a vertical where experience matters. Underwriting a lender is not the same as underwriting a borrower — and our decades in the commercial finance space give us the edge.
In next week’s post, we’ll bring this strategy to life by sharing a few real-world examples from our lender finance portfolio. Until then, thank you for reading, and as always, we appreciate your continued confidence in our approach.
