News Review: Short Term Finance
The myth that short-term is always last resort
by Paul Brett, business development director,
borro.com
one of the myths that still persists about short-term finance is that it is last resort lending, and that traditional bridging finance has been used by those who are desperate to get money at any cost. obviously there have
been cases like this as there have been in most lending channels. But in a recent article, a chartered surveyor who deals with properties in receivership said short- term lending (which makes so much of its facility for speed) becomes a target for poor lending decisions because it spends less time evaluating the property and the customer. clearly, there is a lot of
competition in the bridging market and being able to perform and produce a positive funding result for introducers might indeed put pressure on underwriters. However, it is only those who choose to ignore the basic rules of lending who really put themselves at risk of poor lending. those lenders which take the trouble to put in robust systems, employ properly qualified staff and importantly make the tough decisions as to the quality of the professional help they use to provide valuation and survey information and cover the legal activity, are going to be able to work with confidence. Historically many bridging companies were amateurish in their approach, relying more on their ability to ensure they had legal recourse in the event of default than on cultivating a
Looking for an edge
It is certainly an interesting time for the short- term lending market and there seems to be no shortage of funding propositions around. It is good to hear that not only has Masthaven managed to attract new funding but that hedge funds and other investors have been demon- strating an appetite for our market. Borro itself has been successful in attracting
new funding in March and there is no doubt that there are many attractions for investors, with healthy margins and short-term commitment being at the top of the list. Intermediary interest is also growing as the many uses for short-term funding become more and more apparent. As a lender who secures its loans against personal high value assets rather than bricks and mortar, borro is seeing some interesting items being put up as collateral. From some of the most valuable watches to the
18 mortgage introducer MAY 2011
proper screening process at the start of the process. the current breed of bridging lenders and short- term lenders are very professional in the way they screen clients and the property that is being used as collateral which is in keeping with the importance of the expanded role that the industry is now taking on.
“The current breed of
bridging lenders and short-term lenders are pro- fessional in the way they screen clients and the property used as collateral.”
rarest of classic supercars, clients who consider themselves to be wealthy are using their mate- rial wealth to raise cash for projects as diverse as funding new business ventures to the pay- ment of tax and legal bills.
As our peers among the conventional bridg- ing lenders are also finding, short-term finance is proving to be more versatile than its bridging title suggests. Interestingly, as an asset lender rather than
a property-based lender we are working closely with bridgers to provide top up funding for deals where the lender criteria still leaves the client short of the amount he needs. This can happen when a retention is made due to conditions needing to be met by the client. Working with an asset lender allows a charge to be taken on a personal asset in order to fund the balance. In this way the bridger, the intermediary and the client all get what they want. Synergy.
Don’t panic - the best is yet to come
I am sure that many people will have been encouraged by the positive noises com- ing from the Intermediary Mortgage Lenders Associa- tion. After three years of no liquidity many members are saying they have capital they are now able to lend. This is indeed good news for the lending industry in general but before we all get carried away, it is just the first step of many before we are able to look at a fully functional lending market. The next step is to see securi- tisation move from its first stuttering signs of a return to life and become the robust engine capable of sustaining a resurgent lending cycle. When we look at the chang- es that have taken place to put restrictions or safeguards (depending on your point of view) on capital adequacy for lenders, new rules on product design and criteria, as well as the general state of the economy as the cuts start to bite, then there are hurdles to overcome before we can safely say that the lending market is fit to be discharged from intensive care. Short-term lending has benefited from the lack of traditional funding sources but I don’t see any reason to believe that, even with mainstream lenders begin- ning to lend more, they have any appetite to compete with short-term lenders on their home turf.
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