Brokers and lenders working together
By Brian Rubins, Executive Chairman
Summer holidays are starting, new enquiries will slow down, so this must be the best time in the year to review the past, learn the lessons and plan for the future. It is a great time to think about relationships between brokers and lenders and what each can do to make their journey together more enjoyable.
It really helps for the broker and lender to know each other well and this should extend beyond their respective offices. How many lenders have never met their brokers in person? Having lunch, or a drink after hours, or the odd game of golf or a visit to an event, are established methods of bonding. Neither lender nor intermediary should be too busy to do this and there is no law which says business cannot be discussed during leisure time.
Lenders spend fortunes on their web sites, some more elegantly and usefully than others, but a good web site hosts an enormous amount of product information providing valuable data on terms and pricing. More importantly, they usually detail what the lender is expecting to see when a proposal is submitted. The more information, the quicker and better the decision.
Some lenders supply a preliminary enquiry form to generate an offer in principle. Frankly, this may help the uninitiated to start a conversation, but my belief is that they achieve little more. A phone or preferably a Zoom call will be far more productive and will lead to a more meaningful response when the case is submitted. The lender will recognise the case, recall the discussion, and do everything possible to help.
It should be an accepted principle that lenders need to lend as much as borrowers wish to borrow, however, in the heat of the deal, this fundamental is often overlooked.
There are those loans which can never be satisfied and by lenders recognising this quickly and explaining why to the intermediary, it will enable the broker to avoid wasting time going from source to source to no avail. However, before declining any loan, the lender should consider if there is a structure which will work and make every effort to convert a “no” to a “yes”. Personal relationships oil the wheels and will help to achieve this.
Often, negative decisions are made which could be avoided if the borrower had told the broker more and the introducer had been able to pass this information on. In this instance “ignorance is not bliss”, it just wastes good opportunities. But, brokers must be willing to dig deep for information and to review the loan themselves, a mini-underwrite, before passing on the borrower’s requirements.
Where a deal does not quite fit, often the new business team will be able to work together with the intermediary on changes to the proposal to one which works. For example, it may not be necessary to stretch the LTV until it snaps if additional security can be offered. An example of this could be a second charge on the borrower’s home or business premises, or an investment which has reached maturity where there is increased equity.
With term loans, debt service or interest cover ratio can be a problem. This is particularly so where the project is in its infancy and the income has not been stabilised. Lenders cannot be expected to lend “blind” but a properly researched, simple business plan may be sufficient to encourage them to look into the future, and to cover the interest shortfall with some retained interest until the asset is self- financing. This is particularly relevant to new HMOs, where the income is predictable, but not yet there. Similarly, the refurbishment of hotels, or investment into businesses, often needs time before the income is maximised.
Recently, my company, Alternative Bridging, had such a situation, where we participated in the refinance of a parcels delivery service which had come through some difficult times and needed finance to repay expensive debt while rebuilding its profitability. Instead of declining the proposal, we agreed to accrue part of the interest while turnover was rebuilt. We worked closely with the client’s accountant who provided a good business plan and evidence to support it, and so far, so good!
Development finance is another area where brokers and lenders need to support each other, it is a two-way street, with the lender reviewing the initial proposal and working with the intermediary to complete the story. Development finance is an attractive area for intermediaries, but it often takes them a few cases to get up to speed with the nuances of this particular sector. This is where a good relationship with an experienced lender can come into its own. If a lender spots a good opportunity, it should always help the intermediary to close their knowledge gap.
The development finance journey starts with assessing the borrower’s skill set. Are they a builder with ambition or a developer with experience? Both can be accommodated but if the project is, say, more than six dwellings, the lender will be looking for demonstrated experience through previous successful schemes. Also, there is a difference in appetite if there is to be a third-party contractor under a “fixed-price”, JCT contract or if it is a hands-on promoter who is organising the sub-contractors, with no guaranteed cost. Again, both can be accommodated but show evidence that the forecast cost has been checked against sub-contractors’ priced estimates.
In putting forward a development proposal, issues such as planning, access, rights of light, ground conditions and a host of other factors need to be checked. If you do not know all that is necessary, a three-way discussion between client, intermediary and lender, will help close the deal.
If it is a bridge, a term loan or development finance, co-operation is the name of the game. As an intermediary you will never gather too much information, and as a lender you can never be too helpful. It is all about working together.
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Click here to read the article in the August issue of Bridging Introducer.
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