Niche Lending

Niche Lending

This type of lending for the purposes of this description is defined as cases largely institutional quality but lacking in a minor way in an area other than quality of security. The Fund will niche lend as a means of increasing overall yield provided risk issues are identifiable and properly addressed. Aside from small loan amount, normal disqualifiers from mainstream lenders will be due to issues that include the following: (i) underwriting ratio deficiencies (ii) covenant (iii) track record (iv) financial reporting (v) regional concerns (vi) purchase/appraisal issues (vii) timing (ix) credit (x) corporate structure. The Fund will from time to time consider various niche loans. Various niche examples are cited as follows:

Underwriting Ratio Deficiencies

Policy manuals are sometimes too strictly limiting for institutional underwriters. Canada Penfund will maintain common sense and will not apply a blanket rule from the manual which may not properly apply to a certain case.

Debt Service Coverage Ratios

A DSC is the ratio of Net Operating Income over Annual Debt Service. If the rule is 1.4 to 1 and the subject loans covers only 1.36 to 1 until an income threshold is achieved Canada Penfund may adjust market standard terms and conditions to fund the loan.

Loan to Value Ratios

(LTVR) must usually be maintained at a maximum of 65% depending on the lender. If an LTVR is higher due to a certain appraisal method which holds value unreasonably lower, it may be disqualified by mainstream lenders. If the balance of the file is strong, it will not be declined for this reason alone.


Borrowers must typically have minimum retained earnings or net worth that and must be technically ‘strong’ enough. Periodically, a working capital position may be weak or cash flow may be temporarily down due to R&D costs; appraisal vs. depreciated cost of asset is too wide a span, equity issues arise; project margins may appear weak for some reason or other of the common ratios are thin. A perception may be that a covenant is temporarily deficient. These issues on their own may not be reason to decline a loan.

Debt/ Equity Ratios

There may be an overburden of short-term debt for a good reason or excessive receivables and a balance sheet may not appear perfect. If the Borrower is structurally sound with appropriate exit strategies in place and if the other pieces fit, the loan will  be considered.

Track Record

A company may be a start-up company with less than say 5 years in business or it may by venturing into a new field; it could be a first time owner of a multi-family. Knowledge in one area may not be seen to be applicable in another despite an otherwise demonstrated ability. Canada Penfund will give credit where credit is due.

Financial Reporting

Some Borrowers are not perfectly thorough in record keeping and may not present finances comprehensively in a standard format. If necessary Canada Penfund will take the time to dig deeper for answers.

Regional Concerns

Loans in areas that have marginalized smaller populations than required by a lending manual may be declined for that reason. Periodically regional disqualification can occur and lag time may occur in a recently ‘green-lit’ region. Canada Penfund lag time may be shorter and it is not a strictly handbook lender.

Purchase timing/ Appraisal Issues

The Bank Act states that conventional uninsured mortgages shall not exceed 75% of the appraised value or purchase price, whichever is less. Different appraisal methods can be used which may result in varying values. Appraisal reports can vary in technique and general reporting of information; market results can be interpreted differently. Lenders have “approved appraisers” lists. There are situations where there is no time on a purchase agreement, a cash sale with no contingencies to ward off competing purchasers; a short possession date. Canada Penfund will work “after eight” and do the research to get the job done.


Analysis of a credit history by experienced persons can usually reveal the facts of a situation. Chronically poor credit is inexcusable and avoided by CPMC, without exception. Borrowers who are victims of untimely events and have good credit will be listened to. Canada Penfund will avoid Borrowers of questionable history but it will read between the lines where credit anomalies exist.

Asset Classes

Periodically the market ‘red lights’ asset classes in regions. When this occurs the wide brush stroke may preclude good files for the wrong reasons. Lending policy can be made from out of the region without sound local knowledge. Sometimes a file warrants a look beneath the surface for right answers.


Quality lending opportunities can be missed due to slow reaction time, broad policy manuals, limited manpower and lack of delegation of authority to regional areas. Canada Penfund will be ready and willing to calculate niche advantage and offer quality loans at a fair price.

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