Key Takeaways
- Funding for lending, or lender finance, is private credit provided to non-bank lenders, secured on the loans they originate and repaid from borrower repayments.
- Senior secured facilities, warehouse lines, forward flow and term securitisation are the main structures, used at different stages of a lender's growth.
- Advance rates, the lender's first-loss capital, cash control and performance triggers sit between the investor and losses.
- Lender finance sits within an asset-based finance market estimated at $6.1 trillion, of which private credit accounts for only about $1.7 trillion.
- The main risks sit with the originator, so underwriting quality, verified data and enforceable structure matter more than headline yield.
In private credit, problems rarely start with lending. They start with how lending is financed. A specialist lender can write good loans month after month and still stall, because its own funding does not grow in step with its loan book. Capital arrives late, leaves early, or comes with terms that force the lender to chase volume instead of quality.
Funding for lending is the part of private credit that solves that problem. Investors provide capital to a non-bank lender, secured on the loans it originates, and are repaid from what its borrowers pay. The investor's exposure follows the loan book: it grows as loans are written and shrinks as borrowers repay.
For allocators, it offers something most corporate lending does not: returns serviced by thousands of small repayments rather than a single refinancing at the end. This guide explains how it works, the main facility types, where the risks sit, and why it has become one of the fastest-growing corners of private credit.
What is funding for lending?
Funding for lending, often called lender finance, is the provision of private credit to a non-bank lender so that it can originate more loans. The facility is secured on the lender's loan book, sized against eligible loans, and repaid from the cash those loans generate.
The investor does not lend to the end borrowers directly, and does not take a bet on the lender's equity value. The exposure sits between the two: senior to the lender's own capital, secured on a diversified pool of receivables, and protected by structure.
The term should not be confused with the Bank of England's Funding for Lending Scheme, a 2012 central bank programme that gave UK banks cheap funding to lend on. Private credit funding for lending is a commercial financing arrangement between investors and non-bank lenders.
Why non-bank lenders need it
Non-bank financial institutions now originate a large share of the small-ticket credit banks no longer prioritise: SME loans, consumer instalment credit, point-of-sale finance, invoice finance, education loans and other specialist receivables. Unlike banks, they cannot fund themselves with deposits. Every loan they write must be financed by someone else's capital.
Early on, founders' equity or a single bilateral line is enough. As volumes grow, the weakness shows. The first sign is usually funding friction: lending decisions start to depend on refinancing dates rather than borrower quality. A proper funding-for-lending facility ties the lender's capital to its origination, so growth does not outrun funding.
The first institutional facility is often the hardest step. Lenders that have proved their underwriting on a few million of their own capital frequently find the large warehouse providers will not look at them below a certain size. That gap, roughly $5–25 million first institutional credit lines for specialty lenders and growth-stage businesses, is where Kingsbury & Partners focuses.
How a funding-for-lending facility works
The mechanics are the same as in other forms of asset-based lending, applied to a book of loans rather than a company's working capital:
- Eligibility criteria define which loans can be financed: borrower type, loan size, tenor, arrears status, geography and concentration limits.
- An advance rate means the facility funds only part of each eligible loan. The lender's own capital fills the gap and takes the first loss.
- Cash control routes borrower repayments into accounts over which the facility has security, with a payment waterfall that pays the senior lender first.
- Performance triggers on arrears, defaults, collections and portfolio yield can cut the advance rate, stop new drawings or switch all cash to repaying the facility.
- Reporting at loan level, often monthly, lets the investor see deterioration as it happens.
Where the facility is held in a bankruptcy-remote vehicle, the investor's claim on the loans is also separated from the lender's own insolvency risk. Our guide to credit linked notes covers one way this is done.
Types of funding-for-lending facility
| Facility | How it works | Who holds the loans | Typical user |
|---|---|---|---|
| Senior secured facility | Loan to the lender, secured on its loan book | The lender, with security to the funder | Growing specialty lenders |
| Warehouse facility | Revolving line to a vehicle that holds eligible loans | A special purpose vehicle | Scaling lenders building a pool |
| Forward flow | Investor agrees to buy new loans as they are originated | The investor | Lenders seeking off-balance sheet funding |
| Term securitisation | A seasoned pool is refinanced with rated notes | A securitisation vehicle | Larger lenders with track record |
Lenders tend to move along this path as they grow. Forward flow, once mainly for established originators, is now an option for "just about any lender", according to a partner at Morgan Lewis quoted in January 2026.
How big is the market?
Lender finance sits inside asset-based finance, a market estimated at around $6.1 trillion, of which private credit accounts for only about $1.7 trillion, according to Janus Henderson (January 2026, citing KKR and Preqin). Private credit as a whole has reached roughly $3.2 trillion in assets, by PIMCO's June 2026 estimate, and PIMCO puts the long-run opportunity, mostly in asset-based finance, at $6–8 trillion.
The growth matters less than its direction. As banks shrink their balance sheets in small-ticket lending, the loans still get made, by non-bank lenders funded by private capital. Funding for lending is how that capital reaches them.
What investors gain
- Granular exposure: risk is driven by the repayment behaviour of thousands of borrowers, not the fate of one company.
- Self-liquidating cashflows: short, amortising loans return capital through repayment, not refinancing or sale.
- Early warning: loan-level data shows changes in arrears and collections months before they would appear in annual accounts.
- Structural protection: advance rates, the lender's first-loss capital and triggers sit between the investor and losses.
- Real-economy demand: SME, consumer and trade credit demand persists through the cycle and often shifts to non-bank lenders when banks pull back.
Where the risks sit
The same structure that protects investors depends on the lender behaving well.
- Originator risk: the lender may loosen underwriting to grow, or fail operationally. A backup servicer and step-in rights matter.
- Data and fraud risk: reporting must be verified against bank statements and loan files. Alleged double-pledging of loans was at the centre of the September 2025 collapse of US auto lender Tricolor, as Cambridge Associates noted.
- Concentration risk: a book can be dominated by one product, region or channel.
- Legal risk: security and cash control must be enforceable where the loans and the lender sit.
- Macro risk: unemployment and SME stress feed through to arrears. Our piece on macroeconomic risk and asset-based lending looks at this in more detail.
Why legal structure still matters
Funding for lending works only if the investor's claim on the loans and their cash is clear. For that reason, facilities are often held in securitisation or note-issuance vehicles in jurisdictions such as Luxembourg, where loan assets can be separated from the operating company and managed under clear rules.
At Kingsbury & Partners, this is our model. We lend to lenders: senior secured facilities to non-bank lenders, specialty lenders and growth-stage businesses, secured on the loan books they originate. Each facility sits in a bankruptcy-remote credit linked note compartment of our Luxembourg vehicle, Kingsbury Securitisation Platform SARL (what a Luxembourg securitisation vehicle is), and is placed with professional investors, family offices and financial intermediaries. We originate and hold, and build protection into each structure from the start.
What this means for investors
Funding for lending gives investors exposure to how credit is actually being made today: by specialist non-bank lenders, in small loans, repaid month by month. Returns depend on whether invoices are paid, sales are made and instalments arrive on time. Those are simple questions, and they show up quickly in the data.
For family offices and wealth managers, the attraction is senior, secured, short-duration exposure to granular loan pools, with risks that can be measured and structured. The discipline is in choosing lenders with sound underwriting, verifying their data, and insisting on structures where cash control and triggers do their work before losses reach the investor. For the underlying assets, see What Is Receivables-Based Finance? and Invoice Factoring as a Private Credit Allocation.
Frequently Asked Questions
What is funding for lending in private credit?
It is private capital provided to non-bank lenders, secured on the loans they originate and repaid from their borrowers' repayments. It is also known as lender finance.
What is a warehouse facility?
A warehouse facility is a revolving credit line, usually to a special purpose vehicle, that finances eligible loans as a lender originates them, until the pool is large enough to refinance or sell.
What is a forward flow agreement?
It is an arrangement under which an investor commits to buy a lender's newly originated loans that meet agreed criteria, on a regular basis, over a set period.
Is funding for lending the same as the Bank of England's Funding for Lending Scheme?
No. The Bank of England scheme, launched in 2012, provided cheap funding to UK banks. Funding for lending in private credit is a commercial arrangement between investors and non-bank lenders.
What are the main risks in lender finance?
The main risks are originator underwriting and servicing failures, inaccurate or fraudulent data, concentration and legal enforceability. Advance rates, first-loss capital from the lender, cash control and performance triggers are designed to contain them.
How do investors access funding-for-lending strategies?
Typically through private credit funds, securitisations or note structures such as credit linked notes, which are generally available to professional investors.
