For non-bank lenders, selecting the right funding facility is a pivotal decision that can drive growth, stabilize cash flow, and expand market reach. With various options available—from revolving credit lines and term loans to specialized warehouse facilities—lenders need to consider which facility aligns best with their unique business model, growth ambitions, and asset base. This article explores the key factors every lender should evaluate when choosing a financing facility, supported by industry insights and a real-world example that demonstrates how the right facility can fuel growth.
Why Choosing the Right Facility Matters
In a market that is constantly evolving, choosing the right facility is about more than just access to capital. It’s about creating a financial strategy that supports sustained growth, risk management, and scalability. According to recent industry reports, non-bank lenders deployed over $1.3 trillion in financing across the U.S. alone in 2023, with warehouse facilities and structured credit lines being the fastest-growing financing types, accounting for 60% of all new non-bank lending.
With this landscape in mind, let’s dive into the essential factors lenders should consider when evaluating financing options.
Key Factors to Evaluate in Financing Facilities
Loan Size and Scalability: Different facilities offer varying loan amounts and flexibility. For instance, term loans might provide a one-time lump sum, whereas warehouse lines can grow in size as your loan portfolio expands. Look for a facility that scales with your business to avoid outgrowing your financing.
Interest Rate and Repayment Terms: Interest rates and repayment structures impact cash flow and profitability. Facilities with flexible terms, such as interest-only periods or customized amortization schedules, can ease cash flow during the growth phase. Rates typically range from 8% to 25%, depending on the lender’s risk profile, collateral type, and market conditions.
Collateral Requirements: Collateral is a key factor in lender financing. Warehouse lines often use receivables as collateral, making them ideal for lenders with performing portfolios. Other facilities may accept inventory or physical assets. Evaluate the type and quality of your assets to determine which facility aligns best with your collateral base.
Facility Type and Flexibility: Different facilities offer unique advantages. A warehouse line provides revolving access to capital as receivables are repaid, supporting continuous growth. In contrast, a term loan offers a one-time amount but may limit ongoing liquidity. Understanding the mechanics of each facility type can help align your financing with business needs.
Funding Speed and Process: Time is often a critical factor for lenders, especially those operating in fast-moving sectors. Warehouse lines typically offer quick access to capital once the facility is set up, while some term loans may have more extensive underwriting processes. If speed to capital is important, ensure the facility aligns with your timeline.
Risk and Control: Facilities vary in their approach to risk and control. Facilities secured by receivables, for example, mitigate risk by using existing cash flows as collateral, which may be ideal for high-volume lenders. On the other hand, equity-based facilities may dilute ownership and reduce control, which can be a concern for founders focused on long-term independence.
Avon River Ventures: Providing Tailored Financing Solutions for Lenders
At Avon River Ventures, we understand that one size does not fit all. Our customized financing facilities are designed to meet the unique needs of each lender, with loan sizes ranging from $1.5 million to $30 million, flexible repayment terms, and scalable structures. We work closely with our clients to identify the facility that aligns with their business objectives, allowing them to grow while maintaining control over their operations.
Case Study: How the Right Facility Helped a Small Business Lender Scale Efficiently
Background: In late 2022, a small business lender specializing in short-term loans for SMEs approached Avon River Ventures. The lender was experiencing rapid growth, with demand outpacing its available capital. They needed a scalable, flexible facility that could grow alongside their business while ensuring cash flow stability.
Challenge: The lender initially considered a term loan, but upon evaluation, realized it lacked the flexibility needed to support continuous lending. A single lump sum wouldn’t address their need for ongoing capital to meet new loan originations. The lender needed a facility that aligned better with their dynamic cash flow and asset structure.
Solution: After a thorough assessment, Avon River Ventures provided the lender with a $5 million warehouse line. This revolving facility was secured against their receivables, allowing them to draw capital as needed to meet demand. The facility included a 12-month interest-only period to provide cash flow flexibility, followed by an amortization schedule that matched their repayment cycles.
Results: With the warehouse line in place, the lender increased originations by 40% within the first six months. They were able to scale efficiently, meeting client demand without depleting cash reserves. Today, the lender has doubled its portfolio and is expanding into new regions, with Avon River Ventures as a continued financing partner.
Industry Statistics on Facility Choices Among Lenders
To give some context to facility selection in the industry, here are a few stats that illustrate current trends:
80% of non-bank lenders in 2023 favoured warehouse lines over term loans for scaling, primarily due to the revolving nature and lower cash flow impact.
55% of lenders listed “flexible terms” as their top priority when selecting a facility, underscoring the need for structures that match business growth rates.
37% of lenders are now using facilities that allow for interest-only payments, reflecting a growing preference for facilities that offer cash flow relief during early growth phases.
Final Thoughts: Choosing the Right Facility for Your Unique Needs
Selecting the right financing facility is more than a numbers game—it’s about finding a strategic partner who understands your goals and is committed to supporting your growth. At Avon River Ventures, we take the time to understand each client’s vision and tailor financing solutions to meet their needs. Whether you’re a new lender or a well-established player, we’re here to help you navigate the options and choose a facility that sets you up for long-term success.
Avon River Ventures provides flexible, customized facilities designed to empower lenders. From warehouse lines to revolving credit, we’ll help you find the best-fit financing solution for your business. Reach out to us today to explore your options and take the next step in your growth journey.