Over the past six months, there has been a clear shift in how funders approach due diligence on specialist lenders.
For much of the past decade, capital flowed into the bridging sector under relatively stable assumptions. Credit performance appeared steady even through periods of economic uncertainty, and funders tended to focus on origination volumes, portfolio quality and yield.
That emphasis is now changing.
The collapse of Tricolor and First Brands in the US in October last year brought operational and governance risks associated with asset-based lending into sharper focus.
Both failures ultimately stemmed from fraudulent activity rather than credit deterioration but what they highlighted for private market funders was the need for far more granular oversight of how capital is deployed and monitored once it leaves their balance sheets.
STRENGTHEN OVERSIGHT
Regulators have not been shy to voice their concern. In October 2025, the International Monetary Fund stated that central bank policymakers should strengthen oversight of non-bank financial intermediaries, warning that growing interconnectedness with the banking system could amplify shocks.
Around the same time, the Bank of England launched market-wide reviews into how private market lending operates and what risks may emerge under stressed conditions.
These developments have accelerated a broader shift in funder behaviour. Governance has moved firmly up the agenda.
Funders are no longer relying primarily on periodic reporting or headline performance metrics. Instead, they are seeking much deeper visibility into day-to-day operational practices within specialist lenders.
CLEAR ASSURANCE
Increasingly, they want clear assurance that loans being originated match the parameters agreed in funding agreements. This includes detailed checks on underwriting standards, eligibility requirements and adherence to asset-level covenants.
Document verification processes are also receiving greater scrutiny, with a growing emphasis on independent verification of collateral records, borrower documentation and loan files.
Cash management practices have come under closer examination. Funders increasingly want transparency over how funds are allocated, how proceeds are tracked and what controls exist to prevent misapplication of capital.
In asset-based lending in particular, risks such as double pledging of collateral have become a specific concern, prompting funders to seek more robust reporting and audit frameworks.
HEIGHTENED SCRUTINY
There is a regulatory dimension to this heightened scrutiny. Much of the bridging sector operates outside full Financial Conduct Authority authorisation. While this provides flexibility, it also means funders cannot rely on the same supervisory safeguards that exist in mainstream banking.
Consequently, they are placing greater weight on internal controls, governance structures and audit trails within the lenders themselves.
Importantly, this shift does not indicate a retreat of funding from the sector. Many specialist lenders remain well established, with strong operational frameworks and experienced management teams. Instances of fraudulent activity are relatively rare and anomalies can often be put down to human error.
But for the sector as a whole, we’re seeing a move towards greater discipline and transparency. Funders are seeking reassurance not only about the quality of loan portfolios but also about the integrity of the processes that underpin them.
Lenders able to demonstrate strong governance, robust compliance systems and effective operational controls are likely to maintain access to capital. Those that cannot, may find funders increasingly reluctant to accept risks that were previously overlooked.
