An Introduction to Wholesale Lending

The wholesale loan industry is a subject that raises quite a lot of controversy in the finance sector, with many brokers and lending facilities taking a completely opposite stance to one another whenever the issue is raised. This is particularly true where the actual value of wholesale lending is concerned. Nonetheless, the sale of such products has a number of rather unique advantages on offer, both for the lenders themselves and for those seeking to borrow.

What are wholesale loans?

Broken down to the simplest level, a wholesale loan is an affordable, modern-day lending product that allows the consumer to borrow money at specially adjusted wholesale rates. However, this is only the general theory, as the actual interest rates that are charged will vary considerably from one lender to the next.

To understand how the wholesale lending sector works, we need to consider a working example. In a typical scenario, a wholesale loan broker will acquire funds from a principal lender at wholesale rates and then pass those funds on to a consumer at their own interest rates while applying any additional fees that are required to cover the costs of handling and processing the finances in question. When the consumer repays the loan, the wholesale lender is then responsible for paying the capital back to the investor who provided the funds at the beginning, along with any accrued interest.

Why is wholesale lending becoming such an attractive option?

There are basically two driving forces behind the popularity of wholesale loans, which need to be clarified before the layperson can fully understand precisely why these products look set to stay. In the initial instance, the main investor has a lot to gain from the practice of wholesale lending, as the returns are typically much better than other investment options with similarly low risks. Although these returns may vary considerably from one deal to the next, the rewards are reliable and usually quite profitable.

Secondly, as briefly mentioned in the first point, wholesale lending is comparatively risk-free. This is because wholesale loans are generally packaged as secured borrowing products. By offering wholesale lending products as secured loans, the investor can relax in the knowledge that their funds are safe, as the wholesale lender can always retrieve any unpaid funds by means of selling the borrower’s assets should they default on the borrowing agreement.

Owing to the fact that wholesale loans are secured, they can even be offered to those with less-than-desirable credit histories and those in other potentially high-risk categories, such as the self-employed or commercial loan applicants who are unable to demonstrate a suitable level of financial performance. As a result, this ensures that demand for this particular loan type remains high.

If you would like to find out more about secured loan products, from wholesale borrowing options and commercial loans to mortgages and bridging loans, then please contact UK Property Finance today.