Historically a bridging loan was a “quick-fix”, a short-term loan while waiting for a property, usually, a private dwelling, to be sold or refinanced. In fact, it has become much more, and lenders and brokers are now dealing with commercial and residential bridging, finance for residential developments, refurbishment loans and working capital for the business community. But the quick fix is often not so quick, so how can this be remedied?

First, as lenders, we see immense differences in the way loans are proposed to us by various brokers. From some at best it is a paragraph, others a bunch of documents which we are left to decipher and from a few a good outline of the project, details of the principals, a clear indication of the requirement backed up by supporting documents.

Old fashioned it may be, but a loan application form is of great value, particularly if it is fully completed without “to follows” or “not applicables”. The last thing lenders wish to do is to decline a loan at the latter stages of the due diligence process because adverse information is discovered, or the facts are not as at first presented. The due diligence process is designed to identify any reasons to abort but similarly to confirm the lender’s ability to make the advance. In simple language, the better the information, the quicker and more positive the response.

In many valuation reports there is a section on strengths and weaknesses. It would be helpful if this was repeated in loan proposals. If the company has had some difficult years or the borrower has CCJ’s or the property is in need of repair, say so and explain how this is to be addressed. Unless it is a tick-box lender, there will be no need to decline, but it will speed up the process to know in advance and to build into the arrangements the solution for these or any other problems.

If the borrower’s solicitor is aware of any difficulties with the title which can be overcome by a defective title policy, this should be brought to the lender’s attention asap, not at the last minute when the lender’s solicitor prepares the Report on Title. Why not deal with the defective title insurance during the due diligence period instead of scampering around at the end of the process causing completion to be delayed?

For commercial bridging loans, precise details of the occupation of the property is essential. So often we are just told there is a rental income of so much with no detail. This causes delay and it would be so much better to receive the detail on day one. This should include the correct name of each tenant (not an abbreviated form), the expiry date of each lease, details of any rent reviews or break clauses and finally the responsibility for repairs i.e., is the lease full repairing and insuring (“FRI”) or something more casual?

Residential development finance is a totally different “cup of tea”. There are more moving parts, the process is more demanding, and as a result, due diligence takes longer. It is a fact of life, but it can be managed with forethought, openness, and cooperation.

Some brokers specialise in development finance, but others only come into contact with it from time to time. For the less informed, the solution is to work closely with a lender who can lead the way. If necessary, start with a discussion to explain what is being constructed and the funding requirement and ascertain if the opportunity has legs and what is required. In this way, lot of time and effort can be saved by all parties, enabling good projects to go forward in a well organised way and for non-starters to be exactly that, but without wasted effort and delay.

Development finance proposals need to be supported by good documentation and again a well completed application form will provide much of the information which is needed. At a minimum, the lender will require an appraisal and cashflow forecast and details of the borrower’s experience evidenced by details of previous projects. Also, planning is sometimes complicated but if the lender knows the reference number of the application, they can refer to the local authority’s website and obtain a copy of the consent and the approved plans as well as the S.106 Agreement if there is one.

Construction is procured in several different ways. Sometimes the developer is also the contractor managing a group of sub-contractors or there may be a main contractor at a supposed “fixed-price” under a JCT contract. Either way it is necessary for this to be disclosed to the lender at an early stage together with the identity of the main contractor or sub-contractors and professional team, with the cost confirmed by the contractor(s) and / or a detailed break down from a quantity surveyor.

Currently, valuations are taking extended periods to be completed, and this is particularly so for more complex transactions, and this includes residential developments. Accordingly, the sooner instructions can be given to the valuer, the earlier the report will be received. However, there is little purpose in starting the ball rolling without firm facts. Valuations based on unproven assumptions are likely to cause problems later when the reality is found to be different.

All of this may sound like a lot of bureaucracy and hard work, but it isn’t. It is the way to get loans closed more quickly and to avoid last-minute disasters. Combine this attention to detail with an experienced lender, and completions and commissions will flow more often and more quickly.

Click here to read the article in the November issue of Bridging Introducer.