Presenting lending opportunities can sometimes be challenging as it varies between funders as to what information is required at the initial enquiry stage.
This inconsistency can be due to a lender’s size, structure, management team, processes and source of funding and these differences can create confusion for the borrower or broker when sending a new enquiry.
In general, it is key to strike the right balance. Having too much information can overload the lender and prevent a quick response but providing too little hinders the lender from fully understanding the deal.
When sending a deal to a lender, it is important to consider the purpose of the loan and provide a detailed breakdown of exactly what the funds will be used for.
The exact property address is also important. Having it means the credit team can examine the street view, look into comparables and consider local amenities or distances to major stations and cities. These factors are important in helping to determine the liquidity of the scheme.
Lenders also need to understand where the property would fall in their criteria in terms of asset class. Incorrect information could result in the wrong assumptions to evaluate the deal, which could be detrimental to completion.
Next, it is important to clarify whether there is any difference between the market value of the property and the purchase price. If the purchase price is much lower than expected, we would need to understand what the reason is for a below-market value transaction. On the loan-to-cost side, if this is different, we need to know how much equity the borrower is investing in the project to identify how much ‘skin in the game’ they have.
“It is important to consider the purpose of the loan, a breakdown of exactly what the funds will be used for”
Then there is the loan requirement. This is the total amount required by the borrower, which needs to be divided into the land advance and the build facility on a development project. Very often there can be confusion around gross and net amounts. For instance, in cases where the loan is not serviced, the interest is normally retained by the lender. Therefore, the net loan advance is lower than the total loan amount (gross loan).
In order to present a deal correctly, it is important to consider all of the above points. In addition, these will help borrowers and brokers conduct their own due diligence to understand whether a scheme is viable. For development finance, there is a much more extensive list but the above forms a strong basis for initial enquiries particularly in bridging.
Michael Dean is a principal at Avamore Capital