In Focus Commercial Credit
Communication, not confrontation
In changing times, communication is needed to overcome different issues in the life of a bridging loan
Benson Hersch Chief executive, ASTL
benson@theastl.org
In today’s world, where circumstances may change at any minute, even a bridging loan, which generally lasts about nine to 12 months, requires ongoing attention and communication between the borrower and the lender. Once the initial underwriting, including
KYC and property checks is over, the focus switches to how and when the loan is to be repaid. Bridging lenders have different ways of monitoring loans – in some firms the case is handled from start to finish by the same person. In others, loans are transferred to a customer-care department. In all cases, the principle of TCF (treating customers fairly) applies.
Issue to be considered Depending on the stated method of repaying the loan, different issues will need to be considered. Where the exit is by means of a sale, it is important for the lender to have permission to monitor the progress of the sale; in many cases by having permission for direct access to the estate agent nominated by the borrower. If this is a development loan, then it is
key for the lender to arrange regular visits to the site to see that the work is progressing as intended. Where minor refurbishment is required, then enquiries should be made when the refurbishment was scheduled to be complete. In all cases, changes in market conditions should be taken into account.
Static or falling Where property prices are static or falling, regular checks with the borrower or estate agent should establish whether the asking
May 2018
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price is reasonable and whether offers are being received. This is particularly important where the property is quirky or not typical of the neighbourhood, as such properties tend to take longer to sell. The borrower should also be made aware
of the fact that ‘time is money’. Holding out for a small increase may not be in the seller’s best interest, as, although bridging interest rates are lower than in the past, they still mount up, and the net increase in price could not be worth the real risk that buyers may turn away and look for other properties.
In particular, this will apply where the
prospective buyer is purchasing for their own occupation rather than investment.
Refinance Where the repayment method is a refinance, lenders should review the refinance market on an ongoing basis. Fluctuations can be rapid, for example in the last credit crisis, when this tightened very quickly. Again, where refinance depends on the
completion of building work or getting premises tenanted, progress in these areas requires monitoring. Borrowers should also be made aware
Borrowers should also be made aware that not repaying the loan at the end of the term could involve substantial extra costs, particularly if the lender needs to resort to court action or appointment of a receiver
that not repaying the loan at the end of the term could involve substantial extra costs, particularly if the lender needs to resort to court action or appointment of a receiver.
Extended forbearance Extended forbearance may be suitable for long-term loans, particularly where the problem is a temporary income blip, but continued forbearance can be prejudicial to borrowers, who may be delaying grasping the repayment nettle and not acting in their own best interest. Lenders would certainly prefer to reach an
amicable solution rather than resorting to legal action which is both time-consuming and expensive. Borrowers should be encouraged to
approach lenders when they anticipate problems, rather than hope for a miracle to occur. Communication and discussion with the lender is the way to achieve a mutually acceptable outcome. Avoidance only makes things worse. CCR
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