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13 January 2016

John Waddicker, Director at specialist broker Positive Commercial Finance, discusses the important role of having access to exclusive lenders on a panel and the flexibility they provide.

We’ve all been there, a viable development opportunity arrives on your desk but despite numerous attempts, traditional lenders don’t see the big picture and the proposal is in danger of never getting out of the ground; time is running out and you’re stuck between a rock and a hard place.

That’s where the role of an experienced commercial broker comes in. With access to specialist and exclusive lenders, we’re able to thoroughly review a case and select lenders that will lend based on a more flexible underwriting approach. Not everyone has access to these lenders so it’s worth knowing how they work.

So where does the money come from? Most specialist lenders get their funding from the usual sources. Although not necessarily mainstream, they are tried and tested and, currently, liquidity is high. We’re talking about bank syndicates, institutional funds, securitisation and even their own funds.

However, I’ve seen many cases recently where even the flexible approach of many niche lenders isn’t enough for the development to be given the green light, and without alternatives, it’s easy to see red!

That’s where having access to lenders not on other broker’s panels comes in useful and could be the difference between a project getting off the mark and floundering early on.

Private, and often exclusive funders, are made up of a select group that work with a small number of brokers to fund profitable schemes that don’t quite fit even the niche lenders. They keep a low profile and operate to their own criteria, set apart from the other lenders. Many have been developers themselves and have had expert knowledge built over years of experience. The funding is provided privately or through closed syndicates.

From a client’s perspective the big plus with this sort of lender is the flexibility they provide, by looking at each case as a bespoke case rather than one size fits all. Because they don’t have a set of pre-determined rules, they will consider (and often fund) cases where the property or land type is out of criteria for most lenders. Client credit profile can also be something closely scored by many lenders but private lenders will also look at their experience and business objectives for the project and give this more weighting.

Regarding lending criteria, then some of these advantages will be of more benefit to the client than the interest rate. For example, many of these lenders will fund a percentage of Gross Development Value (GDV) without having a day 1 Loan to Value cap, which is a restricting factor with most specialists.

Having worked with a number of lenders exclusive to Positive, I’ve seen them be more flexible than banks, and more likely to commit upfront to what maybe a long term project, without moving the goalposts at the last minute. They’ll also be more open to considering speculative developments without the need for pre-lets or forward sales, as long as the completed project has the capability to be viable and the loan can be repaid.

Clearly these lenders need to cover their risk, so rates will be higher, but if the loan is taken over a short or definitive period, any extra interest can be taken into account as part of the project costs.

It’s always refreshing to work with these lenders who are quick to assess the client, project and likely project income, without having to go through layers of management to get decisions made. The communication channels are short and if specific aspects of a development change along the way, answers are provided promptly.

The key to a non-standard development is to work with a broker who is expert in commercial developments, has a strong panel of different lenders and can match the case to the lender based on any obstacles that may cause issues with the more traditional lenders. At Positive we always look to do this and work with our clients and private lenders for an optimal solution.