Looking at your clients more carefully 'key to success'

Looking at your clients more carefully 'key to success'



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When it comes to bridging finance, many brokers may think that a clear exit route will override a poor credit history– as long as there is a plan for the funds to be repaid within the timeframe specified, does it matter if the client has previously been made bankrupt or has a poor credit rating? 

According to short term finance firm, Cheval, the background to an applicant’s credit history can make a significant difference as to whether a deal goes through or not.

 

Alan Margolis, Chief Executive Officer of Cheval, gave Bridging & Commercial his views on lending and risk, saying: “Experience has shown that there are two distinct categories of customers with adverse credit histories: there are those who have experienced difficulties – often through no fault of their own – and there are those who have a worrying track record of not paying bills or settling debts.

 

“I don’t subscribe to lending blind and ignoring adverse credit histories – even as an asset backed lender. Exit routes have the potential to disappear. We know that customers with a problematic credit history are going to find it harder to refinance their short term loans.”

 

Cheval has always and will always work with those customers whose adverse credit histories are the result of misfortune or a one off error. “However, with customers whose adverse credit histories have accumulated over time, in addition to having fewer refinancing options available, it is likely to be much harder to engage with them to work through a different exit strategy. They will have already been through the court process a number of times and, the natural inference is that they may not have as many concerns about not repaying you compared to someone to whom maintaining a clean credit history is important.” Mr Margolis said.

But even for such customers the door is not entirely shut. If there is plenty of equity in the security offered and the take out makes sense in light of the credit history, Cheval will still consider the application.

 

In order to distinguish between those customers who have been unfortunate and those whose previous conduct is questionable, one of Cheval’s main underwriting focuses is asking more searching questions of its customers; therefore all cases are assessed taking individual circumstances into consideration. However, Mr Margolis has warned brokers that playing down a client’s poor credit history when putting forward a deal cannot be overlooked in the current climate.  

 

“In the past there was a more relaxed attitude to adverse credit histories;short term lenders could practically do the ‘three monkeys test’ because the exit route was more or less assured. The main banks were lending to anybody and everybody, and property was relatively easy to sell. You could lend by focusing much more on the property than on the person; now that things are tougher and there is an ever-increasing focus on Responsible Lending, you’ve got to look at your customers a little bit more carefully.” Mr Margolis concluded.

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