Talking Point - Great expectations
In the good old days - way before 2008 (that’s right, it was only two years ago) - commercial mortgages were easy to access, cheap and with plenty of lenders.
No experience? Don’t worry! Minimal deposit? That’s OK – 85 per cent LTVs available. Poor credit and no proof of turnover? Come on in and take a seat!
Obviously now this picture has changed, we hear this on a daily basis. So why am I still receiving calls asking for 100 per cent finance on a closed pub from someone who thinks it could be a gold mine but whose only experience is having drunk there when it was open?
Only last week, I had a call from a guy wanting to buy a plot of land and build flats on it – no experience, little cash and fundamentally no idea. Sarah Beeney has a lot to answer for.
Now, as always with these rants, everyone gets tarred with the same brush. I know phone calls of this nature are like sifting for gold and yes, I am pleased the phone’s ringing and no, I am not looking for sympathy.
On the other side of this, all lenders are pickier, are more difficult to access and are looking for brokers to direct the right type of borrower to them. They expect the broker to spend the time to ensure the client meets their criteria and thus avoid wasting time on unsuccessful applications.
We, the broker fraternity, are being used more than ever as the filtration system to more and more lenders. So, the question to potential commercial borrowers is how can we help each other?
Firstly, every deal is driven by the ability to prove that the money you borrow will be repaid – no serviceability, no deal. A closed pub is closed for a reason.
Secondly, be realistic – lenders want to see you contribute an amount of “hurt money” – what would lose if the project went wrong? No hurt money, no deal.
Thirdly, it makes sense - lenders want to work with people who are experienced in the sector, they are less risky. So if you have never done anything like this before, what are you doing to ensure that you can deliver?
Finally, bear in mind that the amount of hurt money or degree of required experience is a movable feast, varying from lender to lender and from month to month. With that in mind, using a broker has never been more important.
Nic Rotton is the managing director of mezzanine finance broker Strata Finance
