The subject of wholesale loans is one of on-going debate, with various lenders having entirely opposite views on its overall value. Nevertheless, when wholesale lending is handled responsibly and proactively, it has the potential to offer a variety of unique benefits for both investors and lenders alike. It’s simply a case of identifying the opportunities where they exist and proceeding at all times with due care and attention.
What Is Wholesale Lending?
In the simplest of terms, wholesale lending refers to a system of taking the money of investors and passing it on to lenders at special wholesale rates. These lenders then provide loans to borrowers at a variety of levels at normal (or slightly lower than normal) rates of interest.
In a working example, one wholesale lender could pass capital from any number of investors on to any number of conventional lenders. These lenders would then make this money available in the form of loans for their own customers, earning money in accordance with their own interest rates and other borrowing costs. Likewise, as the money is paid back to the wholesale lender, it is repaid with interest or commission at a previously agreed rate. This in turn amounts to profit for the wholesale lender, who is then able to pay interest to the investors who provided the capital in the first place.
Why Is Wholesale Lending Deemed Attractive?
There are two important reasons why wholesale lending is deemed so attractive by so many investors. First of all, it represents a good investment choice with the potential to offer returns that are generally higher than would be expected with any other comparably safe investment. Though returns vary significantly from one case to the next, they are generally considered comparatively generous.
But perhaps more important still is the way in which wholesale lending is indeed significantly safer than many other comparable types of investment. The reason being that the money is typically secured against the assets and property of the borrower, meaning that the loans are offered in a largely risk-free manner. Even if the loans are not repaid as agreed, the investors are unlikely to lose out.
As such loans are typically secured on borrowers’ assets, they can be provided to those who would typically be considered too high risk to be offered financial support elsewhere. Which in turn means that the market for these kinds of loans remains uniquely strong and demand robust at all times.