As we sat down for some lunch Ethan was starting his construction of what looked like the next Burj Khalifa. He got to the 23rd floor of construction and asked for some help, I asked what he wanted to build and he replied a bridge to go over the train set. I started asking some questions to help him get to what he wanted. How quickly do you want the bridge building? How big do you want the bridge? How complicated does he need it? Tower Bridge or Motorway Bridge? What is he going to do with the bridge when we’ve finished?
All these questions started me thinking I was talking to a broker and then when I asked him what his exit route strategy was he looked very blankly at me! I realised that the building of a Lego bridge and the structure of the short term loan aren’t too far away from each other.
A bridging loan or short term loan is certainly one of the secured financial options for any client who is looking to raise capital and repay within a short period of time. There are many reasons for borrowing over a short period of time and one question which should always be asked of a client is that very question “When do you intend on repaying the loan?” Without this question being asked should a bridging loan been even a consideration? And if the answer is not within 12 or 24 months then a term loan should be the only consideration.
When considering the merits of a bridging loan application the lender and broker should need to make the process for the client as smooth as possible, by having clear and open discussion. There often there are applications which fall down at the last minute due to the complications in the application which could have been discovered earlier. Keep it simple is the message, know the customers’ requirements, know the lenders appetite and processing requirements and make the completion happen quickly. A year or even two years isn’t a huge amount of time when borrowing money, especially if property development or property sale is part of the application settlement. Yes of course no exit strategy apart from the obvious are guaranteed but making sure that the application isn’t overly complicated is the key.
We at Lancashire Mortgage Corporation have recently had an application where the client, broker and underwriting team worked closely on an application and kept it simple. The client required funds on a property which they were purchasing at auction. The broker presented a full and well packaged case with all clients’ identification, income, valuation. Solicitors were instructed and completed, with no concerns in the legal requirements the application funded just 48 hours after introduction. The exit is to develop and sell the property making a good profit after redemption. This was ideal as the clients had previous experience of this type of development and if they did struggle to sell the property given the current housing market we could always use an Lancashire Mortgage Corporation longer term loan as an alternative, giving the client peace of mind whatever the outcome in 12 months, this is something which is rare in the bridging market.
So after you have considered the lender on a bridging loan keep it simple like Ethan, try and end up with a Lego motorway bridge for your client, it won’t look ornate and complicated but it will certainly do the job and get the client their funds quickly.
Leave a comment