Concentration limit
A concentration limit caps how much of a credit facility’s collateral can come from one source of risk, such as one borrower, one property type or one market. Collateral above the cap is excluded from the borrowing base.
How a concentration limit works
Facility providers do not want their repayment to depend on a single borrower, sponsor, metro area or loan type. So the agreement sets caps, often as a percentage of the borrowing base or of the commitment. The Comptroller of the Currency’s asset-based lending handbook lists receivables “that exceed concentration limits” among the categories commonly designated as ineligible: the excess stays pledged but earns no advance.
Common concentration limits on loan-backed facilities include a maximum share per borrower or guarantor, per state or metro, per property type, for loans above a size threshold and for loans with extensions or modifications.
Why it matters to a private lender
Many private lenders are local specialists, which is a strength in underwriting and a weakness under concentration limits. A lender that does most of its business in one metro, or with a handful of repeat investors, may find a large share of its loans excluded from the borrowing base.
Example
Hypothetical. A facility limits any single borrower to 10% of the borrowing base. A lender has $5,000,000 of eligible loans, $900,000 of them to one repeat flipper. Only $500,000 of that borrower’s loans count, so the eligible pool drops to $4,600,000.
With whole-loan placement, each loan is matched to a capital partner whose criteria it fits, and that partner sets its own diversification. See the lender due diligence checklist for what partners review.
Where Lender Capital fits
Lender Capital places first-lien, business-purpose real estate loans with capital partners. You apply once, then submit each loan with the full file. We send it only to capital partners whose criteria it fits, one partner funds the whole loan at closing and it is assigned to them. You keep your points (less the placement fee), earn the spread above the partner’s rate and service the loan. You pay a placement fee only when a loan funds.
Lender Capital is a business-to-business platform. This page is general information, not legal, tax or securities advice. Terms of warehouse lines and other funding sources vary by provider; confirm them with each provider and your counsel.