In the final part of our ‘How to’ series we explain how you can make sure your deal is ‘right first time’ and how you can avoid delays.
Filling in all the blanks
By carrying out thorough research at the start of the process, many common pitfalls can be avoided.
It may seem basic, but completing a full fact find on your client is one of the most important parts of the process.
David Melville, regional business development manager for Jumbo Bridging, said: “When problems are discovered further down the line it can change the interest rate offered by the lender or the lender may knock it back completely for non-disclosure of all the facts.”
Kit Thompson, director of bridging at Brightstar Financial, recommends asking the applicants specific questions at the outset.
“I had a case come through to me from an introducer in the name of an applicant who didn’t own the property. It wasn’t a fraudulent attempt to obtain money, but confusion over which family member had been registered on the title.
“Make sure you ask the client if the property is in their name.”
Asking the client to obtain a credit report beforehand will help to avoid any surprise debt revelations after the case has been submitted to the lender.
Being aware of lender preferences
Bridging lenders tend to have a specific set of preferences when it comes to the types of loans they are prepared to offer.
Having an awareness of lenders’ criteria will prevent the multiple replacing of a case which could end up costing you the relationship with your client.
Check the following lender preferences before selecting your source of funding;
– Geographical preference – some won’t lend outside the M25, others focus on Scotland or Wales
– Awareness of loan size – loan size restrictions are common, some will cap at £300k others £1m. Some bridging lenders go for ‘big ticket’ deals which climb in excess of £5m and beyond.
– Asset class – is the security residential, commercial, agricultural, equestrian, leisure, hotel. Land without planning permission?
– Product awareness – what term of loan does the lender offer, do they offer a roll-up option or stage payments for development finance?
Melville’s top tip for maximum efficiency during the completion process is to choose a solicitor to act for the borrower who is experienced in bridging transactions.
“I can’t stress the importance of this enough. If the solicitor is not used to the way that bridging finance works or doesn’t understand its uses they can unnecessarily scare the client by warning too strongly against using the facility.”
Bridging finance is underwritten based on the security and the exit route or how the bridging lender will get its money back at the end of the short term.
Thompson’s tip is to make sure that the exit route is viable.
“It needs to be robust or the deal will stall then ultimately collapse. If the borrower wants a bridging loan because they are unmortgagable then how are they going to repay the loan back in 12 months? It needs to be watertight.”
Delays can crop up due to a lack of broker experience if bridging is not their main source of business.
The most important skill is be able to identify an opportunity where bridging finance may be able to provide the solution. After that, the broker can pass the enquiry to a packager or specialist desk to source and process the case through to completion.
Thompson said: “As long as we have an outline of the deal, the valuation, the purchase price, loan size, reason for the loan and the exit route, we can do the rest.”