Advisers reviewing an asset-backed lending proposition are not usually short of marketing material. What is often missing is a consistent set of questions that can be put to every provider and compared side by side.
One. Where does deal flow come from, and how much of it is declined? Two. Who sits on the credit committee, and can a single individual approve a loan? Three. What security is taken, and is it a first-ranking charge? Four. What loan-to-value limits apply, and are they measured against purchase price, cost or independent valuation?
Five. Is drawdown staged against verified progress, so that lending stays behind the value on the ground? Six. Who values the asset, and how frequently? Seven. Is there an independent security trustee, and what powers does it hold on investors' behalf? Eight. How diversified is the book by borrower, sector and region?
Nine. What is the track record on loans that went wrong — has the provider taken assets back, sold them and returned capital, and is it prepared to say so? Ten. Who administers the arrangement if the provider itself fails?
None of these questions is adversarial. Providers with genuine discipline tend to answer them readily, and the quality of the answers is usually more informative than any headline rate.
Capital is at risk in any lending strategy. Security reduces loss given default; it does not remove the possibility of loss, and enforcement can take time.