13 Jan Lender to Broker: Another perspective
Gary Ellis has been speaking to us about his unique perspective on broking. With a background in lending Gary has more recently changed his focus and now works as a broker at Positive Commercial Finance.
We conducted a Q&A with Gary to find out how his previous experience has shaped his day-to-day approach. Take a look at what Gary had to say:
How has working as a lender previously helped in your broking capacity?
From my previous experience in the lending world, I hope I have a good understanding of what initial information a lender is likely to be looking for on a deal.
I am also aware that how you present a deal to a lender is incredibly important as it gets things off on the right footing. I know what the lender needs to be aware of in order to make an initial judgement on the deal and presenting everything in a clear and concise way is a help to them.
The information I try to present in the first instance is:
- Borrower background – i.e. who the company is and the people are that the lender is backing to deliver the scheme
- Accounts for the borrower (if it is an established business)
- Council name and planning reference for the scheme
- Development appraisal
- Description of the scheme and a breakdown of what each unit is (i.e. house, flat, number of bedrooms, gross internal area of each unit etc)
- Breakdown of the build cost and professional fee budget
- The price per square foot which the borrower is intending to build at
- How the scheme is going to be managed
- Will they manage it themselves?
- Will it be managed by a third-party contractor and if so, what is their background?
- Projected sales price breakdown & the price per square ft the borrower is intending to sell each unit at
By considering the above points, I hope I also can identify which lenders are likely to be interested in the deal / where competitive terms are likely to be.
Do you work differently to most brokers because of your previous experience? In what way?
It’s difficult for me to comment on how other brokers work. I personally do whatever I consider to be the most effective and appropriate, for me, initially, that is fully understanding a deal before sharing it with a lender.
When I do send the deal to the lender, I will always give a summary of the above points rather than just sending separate attachments and documents. I know that in order to get a quick response for my customer, I need to give the lender the headline facts in a clear way, so that they can understand the basics of the deal and make a decision on whether they are interested in quoting for the business, without taking up hours of their time.
What is the biggest challenge you face as a broker (when dealing with borrowers and lenders)?
On the borrower side, I am lucky because I have a reasonably good contact base having been in the industry on the lending side for a number of years. With developers I know well, I am in a good position as it is relatively easy to extract information.
For new clients, there are a number of challenges because that crucial relationship is not yet consolidated. A new borrower to me would normally be talking to more than one broker and convincing them to work with me over anyone else is always difficult, especially as I have no idea what borrowing terms are being indicated by another broker. I always aim to be as clear, upfront and honest as possible about what I think is actually achievable on the deal they are looking to finance and that’s one of my main principles. Of course, if another broker is overly ‘optimistic’ on the level of gearing and pricing that might be able to be achieved in the market, then I know I may lose the client and deal. However – that is a risk that I choose to take as opposed to reporting something to the client that I’m not confident is deliverable.
We work in a competitive market place with other brokers and it’s no secret that the borrower’s decision can come down to where the best terms are. There are also so many lenders in the market who structure their pricing on deals in different ways. The challenge, therefore, is showing the borrower how and why an offer is the right one. There are a number of factors which make up the price; navigating these differences and explaining the price to the borrower can often be challenging as it is understandably easy to be blindsided by seemingly low-interest rates. I am amazed that a lot of borrowers get hung up on the interest rate and pay very little attention to the full costs of borrowing the money – in my experience, these costs would normally be:
- Arrangement fee
- Interest rate
- Exit fee
- Whether the above is charged based on the gross or net loan
- Lender’s legal fee
- Lender’s valuation fee
- Lender’s QS – Initial visit cost
- Lender’s QS – stage payment costs
- Any other significant fees that may be included in the lender’s tariff, I.e. administration fees, internal monitoring fees, non-utilisation fees, etc
I am also surprised that more borrowers don’t focus on what the lender’s profile is and track record is with the broker they are using – and whether they appear to be financially stable. The biggest nightmare for a developer is if a lender runs into financial difficulty and pulls out of the deal before completion, or maybe after completion they are not able to deliver development claims on time, or at all. If this were to happen – the cost to the developer of arranging to move the finance elsewhere would be far more than a small initial saving on the interest rate.
What 3 things are key to a successful broker-lender relationship?
For me, the most important factors for the relationship are speed, trust and delivery.
How do you successfully manage expectations on the lender and borrower side?
My style is to be very upfront and tell both sides the facts – sticking to what I think is genuinely deliverable.
I will also be transparent with borrowers about the hurdles they are likely to have to jump over, timescales and what money they will have to lay out with that particular lender to move the deal to a point where it can complete.
On the lender side you need to establish a clear path of communication which means that you can be confident they won’t change their lending terms and will definitely deliver the deal they’ve offered (unless something comes out of their due-diligence that significantly changes their risk of course).
For me personally, I make myself available to do whatever I might need to get the deal to completion, in some cases I need to be right at the heart of things and others will just run alone and are better off without me getting In the way! In my view, the key is to be prepared to do whatever is needed, as much, or as little, as that may be.
What advice would you give to new brokers?
We operate in a huge market and it can be difficult to understand all of the funding options which are available. Deciphering which lender would suit a particular deal is also challenging and it takes time to be able to make those sorts of judgements, particularly if you are working on your own, with nobody’s brains to pick.
If you can build strong a strong relationship with what you consider to be your own ‘panel’ of competitive lenders, covering the whole of the market, as early as possible, it will help you in the long run.