Page 11 - MTIA Summer 2022 Market Brief

Challenges in Servicing Private Loans

The significant growth of private lending creates room for a wide range of service
providers. While the resulting degree of competition is positive for the industry
overall, it does mean that private lenders must carefully evaluate the capabilities
and experience of service providers with ever-greater scrutiny.

Getting it right at the beginning is essential for mitigating risk. Absent a move
towards greater standardization in private lending, a clear view of the causes and
implications of bespoke approaches to deals is the most prudent way to proceed.

As a result, a loan agent must be able to translate loan documentation into
specific actions they will carry out in servicing the transaction. Loan agents
also need to have the necessary experience to deal with situations where loan
documents are ambiguous. The bespoke nature of private lending makes those
ambiguities and grey areas more likely.

Moreover, many of the standard platforms for managing the details of loan
processing do not always support custom requirements out of the box. They
assume a certain degree of process standardization. Asset managers therefore
benefit from keeping up an ongoing conversation—from RFP to subsequent
discussions—about the technology and operational capabilities of loan agents.

Technical and Operational Due Diligence Questions

• What are your processes for handling payments and trades?
• How do you balance standardization and flexibility in
reports and data access?

• Can you quickly customize or extend your current systems
to deliver?

• In areas where technology cannot support desired workflows
or reporting, do you have the in-house skills and capacity to
handle requirements manually?

• How do you manage technical and operational risk?

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