Our Applications team works closely with our originators to complete initial due diligence on new Borrower applications. If the applications proceeds, then the Applications team will manage throughout.
Credit Assessment Group
Our experienced Credit Assessment Group provides an independent opinion of the risks of the lending proposition and to determine whether or not it falls within the firm's pre-defined policies and procedures.
The executive committee reviews the steps taken in the assessment process and signs off the application for submission to the Head of Credit Risk for final sign off.
How loan risk is assessed
Each application is closely scrutinised and numerous aspects are looked at both in isolation and in conjunction with each other. There are times where a negative aspect on its own might not be enough to merit a decline but combined with other aspects it may well be. Equally, that same negative aspect could stop us from wanting to review further information.
There are three key stages in the loan risk assessment process:
1. The Head of Borrower Origination and his team are the primary contact for borrowers and potential borrowers and they will make an early assessment on the merits of any loan application and whether it would meet Invest & Fund’s top line loan criteria and requirements. Many loan applications do not progress beyond this point. The information gathering process is started and any concerns or inconsistencies will be highlighted to the Internal Credit team;
2. The Internal Credit team will consolidate the information that has been provided, including due diligence on the borrower, associated parties and the property project, including any research to compare costings and property values, demand for property in the geographical area and any other appropriate research to validate the borrowers’ figures and projections. If further information is required then this will be requested; and finally,
3. The Credit Assessment Group (CAG) will make the final evaluation on whether the loan can be published on the platform. The three members of CAG have over 120 years’ experience between them in the assessment of creditworthiness in relation to property transactions.
Loan risk is assessed by focusing on 1) the Property, 2) the Borrower and 3) the Security. The following list highlights some key considerations:
1) The Property
1. Location. For example, Invest & Fund do not currently support lending in London, zone 1. Property located near to major cities or significant infrastructure are favoured over more isolated properties.
2. Market. If a property is located in an area where a flat or declining market with poor sales volumes has been evidenced, a loan request is likely to be rejected. Estimated rental values are also relevant to indicate whether a buy to let lender would be willing to refinance an outstanding loan in the event of lack of sales demand.
3. Construction Risks and Costs. We carry out a thorough review of the development appraisal and appoint Professionals to validate schemes and identify these risks as early on as possible. Projected costs compared to industry standards and developer's (and main contractor’s) experience are relevant in determining the risks associated with a loan.
4. Value. Investigation into the proposed end value of a transaction is an important risk indicator. Evidence suggests properties with an asking price of £1.5 million plus tend to take longer to sell. For that reason, Invest & Fund is focused on individual units with a sale price below this figure.
5. Planning. Invest & Fund will not lend against property or land without the relevant planning consents or Permitted Development Rights.
2) The Borrower
As part of the assessment of a particular borrower, a wide range of factors will be evaluated, which include:
1. Corporate Structure. Invest & Fund only lends to corporate entities for residential property development or bridging purposes.
2. Integrity. Inconsistencies revealed in the due diligence information provided or an unwillingness or inability to demonstrate the source of funds may cause a loan request to be rejected.
3. Competence. The borrower's track record and the contractor's reputation are key factors in determining whether a loan request can be accepted. Failed projects and CCJs, bankruptcies, IVAs , and director disqualifications are most likely to cause an application to be rejected.
4. Liquidity. The size of a borrower's cash stake in the project, and their assets and liabilities are important factors when assessing loan risk. An adequate cushion to protect against cost overruns is necessary. For example, using the perceived increase in market value of the property in question as a total cash stake is unlikely to be acceptable.
5. Most Invest & Fund loans require interest to be paid at the end of the loan term (or at redemption), but some may require interest to be paid monthly. In these cases, examination of the sources of income and existing commitments of the borrowing company, any associated companies, and the guarantors is made so providing our credit team with sufficient information to ascertain whether, or not, in their judgement there is likely to be sufficient headroom for the interest payments to be met.
3) The Security
1. Security. Security, including first charges on land or property, guarantees and debentures are almost always required.
2. Professionals. Both the borrower and Invest & Fund will instruct solicitors and the legal documentation is made available on the website. Reports from suitably qualified professionals in relation to the transaction will be obtained, and published on the website, for example monitoring surveyors, BDM updates with photos, for our lenders to review.
All in all, there are a myriad of factors that can affect our lending decisions and it all depends on their individual weighting. The appetite and safety of our Lenders is paramount and whilst I&F will do its best to assist a Borrower with their project, if we do not feel that it is something that our Lenders would wish to see, it will be declined.
For those applications which meet our standards a credit summary is drafted by the Internal Credit team and approved by CAG. It is published on the platform when a loan is made available. It provides an evaluation of the skills, experience and creditworthiness of the borrower, as well as an assessment of the overall project and proposal.