As originally published in
Bridging and Commercial.
Large loans can be extremely lucrative for brokers. On a loan of £5 million, for example, a proc fee of 1.5% would deliver an income of £75,000 for just one case.
But while they present significant opportunity, they also pose a greater risk of falling through than more standard transactions. Some lenders can be more conservative when it comes to the concentrated risk of a large loan and, by nature, these types of enquiries are often quite complex.
So, if you have a client who wants to borrow a large loan, you need to make sure you are doing all you can to facilitate a successful completion. Letting a large loan slip through your fingertips because you chose the wrong lender can prove costly for your client and very frustrating for you.
With this in mind, what qualities should you look for in a lender? Here are three questions you should be asking your lender before attempting to place any large loan:
1. What is your decision-making process for large loans?
The problem many lenders have with large loans is that they have a hierarchical decision-making process. So, while they may be confident about a case at DIP when it is agreed with a junior mandate holder, the progression of the case through the hierarchy can be fraught with indecision.
Often, it can be the case that the questions asked throughout this process do not enhance the credit decision but are necessary for the higher mandate holder to justify their position, and it all takes time.
There are many lenders that claim to be able to underwrite large complex cases in a timely manner, but still have to put large loans through this cumbersome, multi-stage process.
So, look for a lender that doesn’t just claim to be able to specialise in large loans, but is able to prove its commitment with a dedicated process for making large loan decisions. A hierarchical approach is rarely fit for purpose in this market, so opt for a lender with a flat decision-making structure and a daily focus on progressing complex cases.
2. Do you have experience of successful large loan completions?
Ask to see the lender’s credentials. How many large loans have they completed and how long did they take? More importantly perhaps, try to find out how many large loans they have declined once the application process has started.
At Castle Trust, we recently completed a £12m loan in just 11 working days and were handed a tight deadline because the client had been let down by another lender and was left incurring penalties on an overdue development loan. Because of the situation, the valuation and some of the legal work had already been carried out, but it was a very complex loan, secured across multiple properties and the size of the deal required sign off at board level. But our efficient large loans process ensured we were able to secure a near-immediate decision and complete on the deal in just two weeks.
3. How do you secure your funding?
Certainty of funding is always a key consideration, but it is particularly important on large loans, where lenders with fragile funding lines can be easily spooked. So, ask about a lender’s funding, whether they lend their own funds or rely on funding lines from external institutions and, if so, how many funding lines do they have and when are they up for renewal?
If your lender lets you down because it is unable to fund a deal, your relationship with your client is likely to be damaged, so do your homework and make sure you can be confident that your client’s application is in safe hands.