At Avon River Ventures, we specialize in helping specialty lenders scale faster and more efficiently through structured Lender Finance solutions. But for many new or emerging lenders, understanding exactly how Lender Finance works — and how it can fuel growth — isn’t always straightforward.
In this guide, we break it down step-by-step, and share a real-world case study to illustrate the process in action.
What is Lender Finance?
Lender Finance is a specialized form of financing where a lender (like Avon River Ventures) provides capital to another lending business (the “Borrower Lender”), enabling them to fund more loans to their end-customers.
Instead of raising expensive equity or slowly recycling capital, lenders can access larger pools of funding upfront, scale their portfolios rapidly, and improve their returns on equity.
Simply put: We finance the lender, so they can finance their customers.
Why Lender Finance Matters
Lender Finance unlocks growth by:
- Increasing available lending capital
- Lowering overall cost of funds
- Improving borrower-lender margins
- Accelerating portfolio expansion
- Enhancing credibility with institutional investors
For emerging lenders — whether in consumer finance, SME lending, real estate lending, equipment leasing, or niche specialty finance — having a reliable Lender Finance partner can be the difference between slow organic growth and exponential scaling.
How Lender Finance Works: Step-By-Step
Here’s a typical journey:
1. Origination and Initial Discussion
It starts with a conversation. A lender (you) approaches a Lender Finance provider (us) seeking growth capital. We discuss your business model, loan portfolio, underwriting process, current performance, and growth targets.
Typical information requested:
- Loan book details (current balances, yields, terms, delinquency)
- Historical financials (P&L, Balance Sheet)
- Business plan or growth forecast
- Management bios
2. Preliminary Assessment and Term Sheet
If the fundamentals align, Avon River Ventures issues a preliminary term sheet. This document outlines the key proposed terms:
- Loan amount
- Advance rate (typically 70–90% of eligible loans)
- Interest rate / spread
- Collateral structure
- Covenants and reporting requirements
At this stage, it’s non-binding, allowing both sides to align expectations.
3. Due Diligence
Once the term sheet is accepted, formal due diligence begins.
This includes:
- Portfolio audits (loan tapes, stratifications)
- Verification of underwriting standards
- Review of servicing and collection practices
- Legal due diligence on corporate structure and compliance
We may also perform stress testing on the loan portfolio to understand how it would perform under adverse scenarios.
4. Facility Structuring
After a successful diligence process, we work with you to finalize the facility structure. Key structuring elements:
- Advance Rate: % of portfolio value lent
- Eligibility Criteria: which loans qualify as collateral
- Collateral Management: whether via a borrowing base or static pool
- Repayment Mechanics: how repayments and principal recycling works
- Performance Covenants: ensuring portfolio quality (e.g., maximum delinquency thresholds)
We ensure the structure is flexible but protective — giving you room to grow while safeguarding the facility.
5. Documentation
The legal agreements are drafted and negotiated, typically including:
- Master Loan and Security Agreement (MLSA)
- Intercreditor Agreement (if senior and subordinate tranches)
- Servicing Agreement
- Borrowing Base Certificate templates
At Avon River Ventures, we strive for clarity and collaboration at this stage to keep things moving smoothly.
6. Initial Funding
Once documents are executed, initial funding is disbursed based on your eligible collateral pool.
We usually structure facilities with revolvers — meaning as you fund new loans and your old loans are repaid, you can draw down, repay, and redraw within the facility size, subject to eligibility.
7. Ongoing Monitoring and Growth
After funding, the journey doesn’t end.
We continue working with you by:
- Reviewing monthly servicing reports
- Monitoring loan performance
- Adjusting the borrowing base as needed
- Supporting expansion (upsizing the facility)
Strong performance often leads to facility upsizes or blended financing structures as you grow.
Also Read: Lender Finance for BNPL Companies
Scaling a Specialty Lender
Background:
An emerging equipment leasing company in the Midwest had built a $5M portfolio lending to small businesses but was constrained by its limited balance sheet. It had a proven underwriting model, low loss history (<1%), and strong demand from customers.
Challenge:
The company could not fund new lease contracts fast enough, causing delays in growth. Raising equity would have been expensive and dilutive.
Solution:
They partnered with Avon River Ventures for a $7.5M revolving Lender Finance facility.
- Advance Rate: 80% of eligible leases
- Interest Rate: Prime + 4.50%
- Covenants: Max 60-day delinquency of 4%
- Repayment: Principal and interest monthly; recycled principal permitted
Impact:
- Lease originations grew by 2.5x within 12 months
- Portfolio scaled from $5M to over $12M
- EBITDA grew by 80%
- Equity value of the company nearly doubled within 18 months
- The facility was upsized to $15M the following year
Final Thoughts
Lender Finance is a proven engine for scaling a lending business. Whether you’re an established player looking to accelerate or an emerging platform ready to make your mark, understanding and executing the right Lender Finance strategy can transform your growth trajectory.
At Avon River Ventures, we don’t just lend capital — we partner with lenders to help them scale intelligently, sustainably, and successfully.
If you’re ready to explore how Lender Finance can take your lending business to the next level, reach out to us today.
Frequently Asked Questions (FAQ)
What is Lender Finance?
Lender Finance is a type of credit facility provided to specialty lenders — such as fintechs, leasing companies, or niche loan originators — enabling them to fund more loans to their own customers. It’s essentially capital that helps lenders scale their loan books without raising equity.
Who qualifies for Lender Finance?
Lenders with a track record of loan originations, a defined underwriting model, and a performing portfolio are typically good candidates. At Avon River Ventures, we work with companies that do at least $2 million to $ 100+ million in annual originations or those showing scalable potential.
How is the amount of capital I can borrow determined?
The borrowing amount is based on your loan portfolio’s value and quality. We apply an “advance rate” (typically 70–90%) to your eligible loans. The better your loan performance (e.g., low defaults, strong yield), the more capital you can access.
Is this debt or equity?
Lender Finance is a debt-based facility. You retain full ownership of your company — meaning no dilution. Repayment terms are structured around your loan portfolio’s cash flows.
What kind of collateral is required?
The primary collateral is your loan portfolio. Depending on the structure, we may also require a lien on operating accounts, personal/corporate guarantees, or pledges of servicing rights.
How fast can I get funded?
Once we’ve received all requested documents and completed diligence, funding can occur in as little as 3–5 weeks. Avon River Ventures works closely with your team to ensure timelines are realistic and efficient.
Can I recycle the capital I draw?
Yes — most of our facilities are revolving, meaning you can repay and redraw funds as long as the loans meet eligibility criteria. This gives you a powerful way to scale with flexibility.
Do I need to be profitable to qualify?
Not necessarily. While profitability is helpful, what matters more is strong loan performance, disciplined underwriting, and a clear path to profitability. Many early-stage lenders qualify if they show solid loan metrics.
Can the facility grow as I grow?
Absolutely. We regularly upsize facilities for borrowers as their portfolios expand and performance is maintained. We view our lender relationships as long-term partnerships.
How do I apply for Lender Finance with Avon River Ventures?
Reach out to our team via this page to start a conversation. We’ll guide you through every step — from understanding your needs to structuring the right facility for your growth.
Disclaimer- The information provided in this content is just for educational purposes and is written by a professional writer. Consult us to learn more about loans and financial matters.