Speaking on a panel at the British Specialist Lending Senate, Narinder Gill (pictured, left), senior associate at Coreco, said as a broker, a key frustration with bridging lenders at times is “underwriting tennis”, but brokers should have key documents and other information ready.
“It can be quick if the case is packaged correctly, and if that loan is properly understood and presented in the right fashion to the lender, not having to go back and forth to your borrower because you’ve been asked basic questions that as a broker, you should understand and pass on to the lender.
“Ultimately, you are the face of the borrower. You’re representing that borrower to a lender, so you can do that to the best of your ability and put them in the best position, or you can under-serve that client and not have all your documents and information, and ultimately, that will reduce the speed and possibly affect the lending decision,” he added.
Chris Britto (pictured, right), founder and director of Bridgemore Capital, added that sometimes as a broker, he found that “there can be quite a big disconnect between a business development manager (BDM) and the underwriting team, or credit team”.
“We’ve had scenarios where it’s very much yes on the front end, and then we get into further depth into underwriting, nothing’s changed in the front end, but then suddenly it’s a no, and we’ve wasted several weeks of the client’s time.
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“That obviously causes frustration, has a negative effect on the market and a negative effect on how it looks from a broker’s perspective,” he said.
Gill added that “lesser-experienced bridging brokers might not have the ability or benefit of experience to understand those flex points in the case”.
He said: “Where are those key considerations? Where are those grey areas of the approval? Knowing that you can go to a suited lender, and maybe beyond the BDM and get credit to look at it pre-application, give this soft thumbs up on it.
“Is it actually: ‘We like this bit, but we can’t quite over that, but we can do this’? Understanding that from the outset, that’s where I think more experienced broker bridging brokers and lenders work well together.”
Understanding customer and lender vital from the outset
Britto said “one of the biggest red flags” that you can get as a broker is if a “lender comes back to you and says: ‘I’ve seen this deal three times from four different brokers’”.
“That happens quite a lot, especially on the development side,” he said.
“I think the next point is probably going to be the experience of the customer. What have they done before? I’ve had clients that have come to me, they’ve never done anything before, and they want to do a 20-unit ground-up development.
“The other main thing for me is someone coming in with just really out of this world end value gross development values (GDVs) and really low-ball bridging costs. As soon as you hear those kinds of things, you start questioning whether they know what they’re doing. Have they been sold a dream by someone else? That’s when you really need to use your own experience to challenge the customer. And I think that that’s one of the things that doesn’t happen enough in this sector, is challenging the customer,” he added.
Gill added that there were “key things from the outset that need to be understood”, including the borrower, their background and borrowing experience, the security in question and the type of scheme or development that they want to get funded.
“You also need to understand the lender. Who are you going to work with? How well-suited are they to the borrower and vice versa? For me, there’s some of the key questions I like to understand when putting forward [a] proposal to a lender, and most importantly, I think, is ripping the plaster off and addressing the issues needing to be viewed and opined on.
“What are the key considerations within the credit approval? Maybe there is a point that sticks out as maybe we need some flex on credit policy, or what are the issues here that we need to quickly understand, accept and move on?” he noted.
Borrowers should not be ‘solely reliant on a singular exit’
Gill said it was better for borrowers from the outset not to be “solely reliant on a singular exit”.
“I think… having a primary, secondary or tertiary exit is so important in the current lending climate. So many things can go wrong; you could have time and cost overruns, you could have geopolitical issues that destabilise the term exit market and other third-party factors.
“It’s really making sure that you’re not exposed to a sole exit or heavily reliant and making sure that there are alternatives. There is a duty of care. You’ve got a client, ultimately, that will hit default rates, breach fees and be subject to a loan that can turn very precarious.”
Britto agreed, adding that it was important to know from the start “how strong those exits are, the ability to pivot, what different exit types there are available”.
“But if you think those exits are a little bit risky, then it’s also worth understanding what those default rates are.
“Is the bridging lender going to be understanding? Are they going to be willing to give an extension? Certain lenders are very quick to want to drop a 5% fee on people on the total loan amount day one after the term has ended, for instance.
“So, I think working with the right lender, if you think it is going to be a bit ropey with potential exits, going with someone who is going to give someone more time without penalising them too heavily,” he said.
