cFI: Bridging


Going back to old school lending


It’s not hard to see why lenders have retreated to the safety of black and white computer-generated credit scoring. But there is still a place for old school lending


by


Jonathan Samuels, CEO,


Drawbridge Finance


“I am not a number, I am a free man”, exclaimed Patrick McGoohan in the sixties TV series, The Prisoner. These days, much the same lament rings out all too regularly in the property sector, as prospective borrowers who should be able to get finance for their projects are consistently turned down by lenders that rely exclusively on the results of computer-generated credit scores.


Almost entirely, the flexibility and common sense of old school lending practices, where prospective borrowers were looked at on a case-by-case basis, have been replaced by automated credit assessment systems that treat them as little more than numbers — and if they fail the test, fail to meet the requirements of the latest lender algorithm, then too bad. It’s not hard to see why lenders


have retreated to the safety of black and white computer-generated credit scoring. Many are still black and blue after the profligate lending of the pre- Credit Crunch days, which came back to haunt them in the form of defaults and repossessions as global money flows dried up and the economy went pop.


But it’s more obvious by the day that many lenders, still licking their wounds, have gone too far. In a growing number of cases, the use of common sense when it comes to assessing a prospective borrower’s creditworthiness has gone out of the window. ‘Underwriting says no — sorry’ is a line many of you will be familiar with, I’m sure. And once the dreaded line has been delivered, that’s it. There’s no opportunity to argue your corner, no opportunity to ask the lender to look at the detail of the deal and apply common sense. It’s back to the drawing board for you and your client.


IndIvIdual approach But there is an alternative to computer- generated scoring, which many of you, I’m sure, will fondly remember. It’s the traditional, old school approach to lending where a picture is built for every case and is underwritten on an individual basis. In this approach, the pros and cons of a deal are assessed in their entirety rather than a decision made based on a digital score. Crucially, this ‘manual’ approach to underwriting enables the lender to take a view when an application falls just outside the required criteria. Unlike on the high street, something that is slightly outside the box is not an automatic ‘no’. Instead, an attempt is made to make the deal work. With traditional underwriting, there’s an understanding that many individual


34 mortGaGe introducer AUGUST 2010


cases are not black and white but are grey. They simply need to be looked at more closely - and the fine details understood and researched - rather than be brushed to one side. It’s about looking at deals positively and constructively, rather than negatively. For example, we recently made a £2.6m loan against an aircraft hangar in Luton Airport. By any standards, this loan deal was fairly leftfield and would have been red-penned by the majority of lenders. However, we took time out to do the necessary research, used the connections we had in the industry to make additional enquiries and came to the conclusion that the borrower was strong and the reason for the loan - the purchase of the hangar - legitimate and a safe bet. During our research, and through our conversations with the client, we discovered that no more hangars can be built at Luton Airport and that there is a long queue of companies trying to buy them. Luton Airport is also perfect for private plane operators because it is the only ‘London’ airport that can operate 24 hours a day without flying time restrictions. Likewise, we recently loaned £1.5m to a client for the purchase of land, with other security in the form of first and second charges. Now we don’t ordinarily lend against land but in this instance the borrower was very strong, as was the other security, so we


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