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make it impossible for us to provide funding.


gettIng tHe DeAl rIgHt Introducers and brokers who place this type of business may well find the following information on the most common problems we come across enlightening as forewarned is certainly forearmed in this business, plus being aware of these issues beforehand can often ensure they can be dealt with before they scupper the entire deal. one of the major issues that is


often a potential problem comes with the plans for refinance. We would never enter a deal without knowing exactly what the exit strategy is for the borrower; normally with property development it is a simple case of refinancing the property once value has been added. It is important for the borrower


to know that these loans are not intended to be much longer than a 12-month period, although our maximum term for development finance is decided individually. given the current lending


appetite of the major banks we are increasingly seeing problems generated, and often at the last minute. In situations like this the bank that is supposed to be refinancing the deal at the end of our loans’ term may pull out altogether, or call for a last-minute moving of the goalposts. This is why it is vitally important


that the refinance exit is, if not set in stone, then as close to this as possible. obviously, the developer could


sell the property to repay but we find that most do not wish to do this, given they have worked hard to develop and to get it into the necessary state. The other major finance issue


throughout such a period can often come when it is deemed that more money is needed; the lender lined up to provide the refinance could decide it does not want


“one of the major issues that is often a


potential problem comes with the plans for refinance. We would never enter a deal without knowing exactly what the exit strategy is for the borrower; normally with property development it is a simple case of refinancing the property once value has been added. It is important for the borrower to


know that these loans are not intended to be much longer than a 12-month period.”


greater exposure than it anticipated originally. This could add ongoing costs to the borrower who will find his or her bridging loan continues to need servicing, and from our perspective, the redemption of the loan is delayed. This is not in our best interest as


we want borrowers to pay off their loans as quickly as possible.


A Dose oF reAlIsm other issues in development finance include the property’s valuation. over-estimating a property’s value can mean our initial understanding of how much we are able to lend and the costs of that lending are immediately consigned to the scrapheap because our valuer’s valuation deviates from the initial assumptions. It is important introducers ensure


their clients are realistic about not just the initial valuation they place on the property but also the likely valuation when it has been developed, given this will affect the refinance and exit strategy. developers should have a strong


understanding of what they want to achieve, the likelihood of building consents being awarded and the timeframe that this is realistically likely to take. Better to over-estimate in this regard than be caught short in the planning department. Timescales can often differ on


what is achievable with builders often over-running and/or going over budget. developers should factor as much of this into their costings as humanly possible because we can guarantee that over time, the added extras can add up to a sizeable budgetary increase. This will all need to be factored in to any refinance arrangement. Many potential problems are


issues of timing and given this is the short-term finance market, this is perhaps not surprising. Keeping a firm hand on the


tiller from start to finish and being realistic at all times about what is and isn’t achievable will make the likelihood of not just the initial development finance being secured but also that it can be paid off within the outlined timescale.


Bridging InTroducer september 2011 33


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