More importantly still, they’re structured to make the developer’s life a lot simpler, by giving them all the finance they will need for a specific project under one roof.
Think of a senior stretch loan as a senior loan with a mezzanine facility built in. So rather than having to approach another lender for the mezzanine finance, which means you have to enter into all sorts of complex inter-creditor agreements, do two sets of legals and double up on the paperwork, the senior loan is ‘stretched’ to give you the financial firepower you need. In that sense, this is a product that does exactly what it says on the tin.
How far a lender will stretch varies, of course. Our own senior stretch product range goes to a maximum loan-to-cost of 85% excluding stamp duty and interest. Essentially, this means developers are able to commit less of their own capital, which boosts their cash flow, and enhance their return on capital invested. It also empowers them to take on bigger, more adventurous projects.
As you can imagine, charges and interest on senior stretch loans will vary from lender to lender. At Dragonfly, we have a 2% arrangement fee and an exit fee of 2% on our two stretch loans. Interest, which is added to the loan, is charged at 11% per annum, although the loan term can be as little as one month.
Different lenders will also lend different amounts. For example, our maximum loan size is £40m and the minimum amount we will lend is £2.5m, while our maximum loan to gross development value is 70% including interest.
Small print aside, all you really need to take away from this is the fact that, if you have developer clients who need flexibility and financial firepower, and who are keen to avoid an administrative headache, then a senior stretch loan could well be the answer.
Mark Posniak is head of sales and marketing, Dragonfly Property Finance
