Jonathan Sealey

Transparency and communication is key to avoid potential misunderstandings

In a transforming and changeable market, risk management is all important; it is essential to have a flexible attitude to bridging lending.

This means looking at every case on its own merits and perhaps lending on things that a more mainstream lender wouldn’t touch. The success of this is in a lender’s approach to risk management.

Every lender has their own attitude, both to due diligence and the type of risks they are prepared to take. Some lenders are happy to automate the process, but perhaps lend more conservatively. Others lend in a way that is more unusual, which they can do by taking a more individualistic approach.

Of course, a personal approach relies on enough underwriting staff to give every case the time and attention that it needs and still turn it around quickly. At Hope Capital, we’ve increased our underwriting team by 40% in the past year and will continue to expand it still further as our business continues to grow in order to hit high service targets. This helps to counter any risks while maximising opportunities and means every case can be looked at on an individual basis.

The key to risk management from a bridging point of view is lending against viable projects with a solid exit route. The project could be outside of normal parameters, but if the borrower knows what they are doing and the exit route is clear, a flexible lender should be able to weigh up the risk and lend accordingly.

This may mean taking a different approach and carrying out due diligence checks on the borrower to ensure they are reputable and experienced in carrying out similar projects. Experience is key and it could mean that a borderline project is lent against because the borrower has the experience to make a success of it. 
One approach — which we favour at Hope Capital — is prioritising getting to know the borrower. Different lenders have different approaches, but we make sure we meet every borrower face to face and visit every property that we lend on. If we can’t go personally, an asset manager does this on our behalf.

Of course, any lender taking this approach needs to ensure that the asset managers they use know their processes and underwriting criteria first so they can view the borrower and the property as the lender would themselves.

Transparency and communication is key to avoid potential misunderstandings. This is always more likely if the lender hasn’t met with the borrower. To overcome this, we hold a video conference with every borrower to explain the details of the loan to try to ensure they fully understand. While most brokers will also explain this when placing the case, having the lender go through verbally just helps to reinforce to the borrower the costs and terms.

Ultimately, it is important that all stakeholders work together to mitigate any lending risks. Lenders, brokers, valuers, asset managers, solicitors etc; everyone has a role to play. This relies on clear communication, co-operation and collaboration, all with a common purpose that helps the borrower achieve their objectives and the lender achieve a successful loan with the money paid back in the set time period.

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