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Bridging loans | 15
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opinion identify the most important features of stands and respects the pressures and dynamics can provide for a property transaction just in
ensuring that a bridging proposal runs smooth- of the bridging loan and will work closely with case an alternative to the property financing
ly and completes as expected. the lender's solicitors to ensure that the loan solution cannot be achieved. Whilst it is not
Make sure you identify at the outset whether advance is completed quickly and with the necessarily a source of "finance of last resort",
or not the property value referred to in the minimum of hassle. nonetheless, during the process, a borrower
offer from the bridging lender is based on Finally in order to ensure that the borrower's may well have been able to obtain cheaper term
Open Market Value or Forced Sale valuation. expectations and understanding of the terms of finance or may have been able to negotiate
The difference could be as high as 20 per cent the loan are absolutely clear make sure that the more time than originally expected, with the
and therefore will make a material difference to bridging lender provides a full offer and not other parties involved in the transaction con-
the amount of loan that your client expects to just an AIP with limited information. For tracts, and this will allow them to fund the
be offered. At Bridgebank Capital we lend instance we do not issue AIP's, but on receipt property deal as originally planned.
against Open Market Value. of a fully completed application form together Other deal breakers that we regularly experi-
Make sure that the bridging loan "take out" with full supporting information, produce a ence cover such issues as:
arrangements are both in hand and realistically fully detailed Offer Letter, which clearly states The Valuation report down values the prop-
achievable, such that the bridging lender can all the terms and conditions of the loan erty and therefore directly impacts on the
get a certain level of comfort that the redemp- advance and the requirements needed in order amount of the loan that can be advanced to
tion of the loan will take place as expected. to complete the loan advance. We consider this such a level that the borrower cannot proceed.
Notwithstanding that the bridging loan is to be hugely beneficial to both brokers and Due diligence on the borrower carried out
advanced on an 'open' basis, the deliverability borrowers as it does not leave any area, as to by the lender uncovers information which
of an exit must nonetheless still be viable. This the terms of the offer, unclear. causes the lender to reconsider its position and
is especially important in the current financial Q: Many introducers are cautious about withdraw the offer.
climate, where bridging lenders are pulling promoting bridging loans as there is a view The borrower's legal representation is not
deals in progress through an inability to get that many loan applications do not proceed, experienced enough or sufficiently versed in
comfortable with the applicant's repayment even though an offer has been issued. Why is the time sensitive nature of the transaction and
proposals. this the case? therefore the need for the bridging finance, and
Bridging lenders will require a valuation A: Firstly, there needs to be a recognition to inadvertently causes the client to lose his deal.
report on the property to support the loan the fact that a bridging loan is a "facilitator", Overall, it is evident that many applications
advance. Arranging a valuation report from an providing finance to allow a property transac- do not close because the borrower has found
unacceptable valuer could waste time and tion to proceed that otherwise may not an alternative route to taking the bridging loan.
money; so ensure that the valuation report is progress without the use of this particular Likewise, a certain number of proposals do not
no more than 3 months old, is carried out by product. It is not a term loan and should never proceed through due diligence of the lender.
an approved panel valuer for the lender and be used as a financial instrument to fund a This is a specialist loan product, in a non-
covers all aspects of reporting requirements property long term. conforming sector of the property finance mar-
that the lender requires in the valuation report Additionally, as many bridging loans are ket, and unfortunately many deals will falter
- this is likely to include comparable evidence, advanced without the lender being too con- along the way; but the rewards to both intro-
marketability and photographs. cerned as to the income and cashflow capabili- ducer and borrower are good when a deal does
From the outset ensure that the application ties of a borrower to service the loan, by its conclude.As the year comes to a close, the big
form and all supporting KYC and money laun- very nature, a bridging loan is a high risk loan question is just how tough is 2009 going to be?
dering information is submitted to the lender product carrying a commensurately higher Many so called economic experts are saying
in full, and properly signed off and certified. interest cost than that for a term loan. that it will be 2010 before we see sustained
Try to ensure that the borrower uses an Consequently many applicants could merely signs of recovery, but experts have an impres-
experienced property solicitor who under- be looking for the comfort that a bridging loan sive track-record of getting it wrong!
www.mortgageintroducer.com February 2009 Commercial finance Introducer
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