Development Finance - Why Headline Rates Do Not (Necessarily) Matter?

Posted by Krios Capital Partners on 15th December 2021 -

Obsession with headline rates can be misleading.

How many times have you been left frustrated because the goal post moved (again)?

When applying for development finance or a bridging loan, the initial offer is only one piece of the jigsaw.

Nothing is (yet) set in stone, meaning that by the time you complete the loan, you might do so on completely different terms.

As your fist contact point with a lender a “BDM” (a business development manager) will do his/her best to get you attractive terms based on your deal’s profile.

That said, he/she cannot guarantee the outcome since his/her role is limited to the first few steps of the process.

What happen next is down to the Underwriting or Credit Team (“the balance sheet gatekeeper”).

To that end, pre-empting the underwriting requirements is critical as this is the ultimate process which will confirm the level of appetite (or lacktherof) and drive the outcome of the final gearing & pricing.

Just to name a few; it doesn’t hurt to check with the prospective lender if they’re comfortable with:

1. Proposed security (i.e. type of asset, location)

2. Borrower’ profile (credit history, financial standing)

3. Borrower’s experience

4. Proposed contractor & professional team (if applicable)

5. Level of skin in the game (cash)

6. Deal structure (i.e. type of SPV, residency status, etc.)

7. Source of funds (i.e. where is the equity/cash coming from?)

8. Exit strategy

Getting answers regarding the above will also help a borrower understand whether they can match a lender’s requirements. If not, at least the situation is clear from the outset. A win win for all parties.

Although we appreciate the financial ramifications of pricing, selecting the “best” lender for a deal often requires a more subtle approach.

In short, it should be about striking a balance between pricing’s expectations and deal execution certainty.

ABOUT US

Krios Capital Partners are a London based property finance boutique providing bespoke funding solutions for real estate whether it is the acquisition of a property, the recapitalisation of a portfolio or property development.

Our aim is to provide a one-stop-shop solution for property investors and developers seeking finance to enable speed of execution, a seamless process and, more importantly, a successful funding journey.

Should you have any funding requirements or just want to talk to a member of our team, please get in touch today.