Lender Criteria – As the proprietors of the original commercial finance sourcing system, Optimus, it is something that Fiducia knows a lot about.
What are Lender Criteria? They are the details of what lenders will and won’t accept about a borrower and their requirements when they present an application for funding.
I appreciate that when we are asked for ‘just a quick idea’ of what is available for a client it is frustrating to either be told that we need to know more about them and their requirements – or to be told a very wide ballpark or range with a long list of caveats attached.
The temptation as a broker would be to quote what you know is available to someone out there, and what would be very attractive terms to get the ‘hook’ and engagement from the potential client – and then worry about finding someone who can justify that indication later.
But that is not how we operate – and it does the potential client no favours. It is a number generated from thin air, with no relation to their circumstances or requirements – and they could commit to a cost or transaction based on the ‘guesstimate’ that they were provided, which could leave them out of pocket if the indicative terms cannot be delivered on.
So when we talk to a client to get enough details to secure an indication of terms, there is still a caveat that the indication is subject to greater analysis of their financials and the requirements – but we will have gathered enough information to be able to match their requirements with eligibility criteria for different lenders’ products.
Below are criteria that we will cover with a client in an initial call to allow us to make an initial eligibility check and indicate terms. These are by no means exhaustive and are commonly just gathered in a conversation, so the client may not even realise they are providing as much information to us as they are:
- Geography – which home nation is the client/property based in?
- Sector – if involving a trading business, what sector are they in?
- Trading company – how long has it been trading, what exactly do they do and what is the recent financial performance?
- Business Finance:
Ø What type of product they require
Ø What size facility
Ø What is the business reason for the funding?
- Property finance:
Ø What type of building/structure is it? (Commercial/Semi-Commercial/Residential/Land)
Ø What type of finance do they require? (Owner/Occupier or Investment)
Ø What is the property value and what is their deposit/contribution?
Ø What variable of funding do they require? (Term/Fixed or Variable/Interest only or Capital repayment)
Ø What other property is held in the background by the limited company and/or directors?
- Credit – Any adverse credit for either the company or the directors?
- Anything else that we should know up front?
You would be amazed at what answers can come up on the last question – but seriously, if we are aware and can make lenders aware of any ‘wrinkles’ up front then it can make the proposal more likely to succeed than if the lender discovers these issues late in the process.
So what do all of the above have to do with lender criteria?
- Not all lenders lend to companies or on properties based in all 4 home nations.
- Lenders will have sectors that they won’t lend to – common ones that are excluded might be adult entertainment, munitions or gambling for example.
- Some lenders have a minimum length of time trading required, or a minimum level of experience with property or development.
- Lenders all have a minimum and maximum loan amounts.
- Property lenders don’t all lend on every type of building – some will only fund investment, some only owner-occupier and some both.
- Lenders vary in their appetite for any type of adverse credit – some won’t accept any, others might accept it if it has been cleared for a defined period – someone might accept an open credit event with a story!
The final thing that I wanted to mention was the pandemic environment, and its affect on lender criteria. Their risk appetite has changed and therefore their lending criteria have changed.
We have been updating our systems lender by lender to try to capture their current criteria – a long process but critical because there are not many that will have remained the same since pre-Covid.
And dauntingly we know that we will likely have to repeat the exercise again over the next year because as the economy recovers and evolves again, so will lenders’ appetite for risk and that is what drives their lending criteria.
Beware of the claims that someone (or their website) can match you with lenders in a couple of minutes based on their systems that hold the criteria of hundreds of lenders – I can guarantee that the criteria won’t be up to date across the board.
We see large lenders shifting slightly their criteria on a monthly basis, and in the odd case more often – so there is a manual check to be done and this is where your commercial finance broker is earning their money working for you.
So, sorry for wanting to know a bit more up front about you and your requirements – but my answer will then be based on your eligibility to lender criteria as we have discussed it – and not the best rate available to someone, with me worrying about how I get that for you later!
How do you want to get funded?
Mark Grant, June 2021.
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