BANKING: Banks Are Still Lending
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There is a misconception in the property market that its woes are being exacerbated by a lack of bank lending.
But, says BoE Private Client’s Adele Arnott, bank finance has not dried up. She says all that has happened is that banks have sharpened their lending criteria, making it more difficult for some would-be borrowers to get finance.
“In the heydays of the property boom, prior to 2009, many entrepreneurs became property developers or investors. Many of them had no expertise, prior experience or sufficient cash flow to see them through the normal peaks and troughs of the property cycle. The global market crash forced banks to relook at how they lend money and what risks they are prepared to take.
“In order to best measure the risks, bankers have found it has become critical to understand the client behind a specific transaction, the property, the cash flows that the property can produce and the clients’ own cash flows outside of the specific property investment.”
She says it is critical for banks to approach funding with a far greater understanding and entrepreneurial insight.
“BoE Private Clients’ structured lending team goes far further than normal lenders in that it includes its private bank and investment specialists’ insights when analysing deals.
“We typically analyse the client’s financial structure and balance sheet and often we are able to improve the investment returns by better leveraging off the borrowings. Not only is this great for our clients as s it allows them to see the investment picture more holistically ( instead of focusing only on the specific deal) but we can even help them see the lending requirement against a top40 share portfolio or a development bond.”
She says a good financier can add further value by being part of the deal making process for property entrepreneurs and sometimes even brings parties together in order to facilitate deals.
“As an example one client might have non-performing vacant land on his balance sheet and by linking him to the right partner (either an existing client within BoE Private Clients or someone from our network) we are able to maximize returns and create opportunities for investment and better returns on assets.
“The property industry is very dependent on relationships between, for example, retailers, property brokers, auctioneering houses and banks and many of our clients benefit from the collaborative way in which BoE Private Clients applies its insights. This collaboration can add significant strength to our clients’ business ventures and help them manage costs and cash flows. Experience shows the deals that have been the most successful are usually a combination of good cash management, property related relationship management and successful cost management.”
She says since the introduction of Basill II, credit scoring of deals and individuals have become critical. There are specific aspects bankers bear in mind when considering lending including credit risk rating and credit history as well as existing cash flows.
“Banks will generally not lend to an individual with a bad credit history even if the lend is housed in a separate entity. And those businesses which were once good risks but whose value might have plummeted since the downturn, are generally worse credit risks for banks.
Bankers have basically simplified the lending process by returning to the basics. These include among other factors, an analysis of:
- The location of the property and the utilization model
- Client profiles and track record
- Nett asset value
- The cash flow generated in property deals by the leases associated with the property and cash flow that is not related, which could be linked to the deal
- Lease profile (length of lease, tenant mix, escalation clauses)
Business News Sector Tags: Finance| Property|