Every bridging finance provider will have different checks that they carry out before funding your bridging loan. The main things that they want to confirm are your security, investment opportunity and affordability. This is because ultimately the lenders want to know that they are investing in a good property and individual and will likely recover their funds – so all the checks are based on fulfilling this criteria. Our guide below lists some of the main checks carried out by the lenders we work with. Please note that the requirements will vary from lender-to-lender.
Applicants will typically be required to complete an application form stating their name, address, date of birth, company name, job title and plans for their project. Customers may need to confirm this information during the application process with the following documentation:
- Copy of their drivers’ license
- Proof of address e.g utility bills from the last 3 months
- Pay-slips/bank statements
Decision in Principle
After hearing the initial plans, lenders will be able to offer you a ‘decision in principle’ if they like what they hear and want to work with you. It is a written document promising to commit to the loan provided that all the information you have given stacks up. The decision in principle is a document which needs to be signed on the bottom right corner of every page by the borrower and then it can be sent back by email, fax or post. The rest of the application process is now geared to confirming all the details presented in your original application.
Lenders will need to know what you are putting down as security. In the case of bridging loans, this is most likely to be your existing property or the new property you are looking to purchase. The lender will need to know the value of this property confirmed by your surveyor or in some cases, they may provide their own.
The security is important because this is what the lender will be taking as collateral and will repossess in the unlikely event that you cannot keep up with repayments. By having the loan secured, it means that the loan provider can offer you a competitive rate and the more equity you have in this property, the better.
A professional valuation of the business or property you are looking to purchase is essential. You may be able to provide this valuation from your own surveyor but some lenders will provide an RICS valuer as part of the process. The valuation of the development will be key to determine how much you can borrow and how much you need to carry out your project.
Project Plans and Potential Value
The lender will want to understand your plans for the project and why you require development finance. They will be looking for potential in the business or property that you are looking to invest in. For the business, they will need to see previous results and accounts to get an idea of the growth potential. Maybe proof of future orders or business will help secure the funding you need.
Similarly for properties, they want to look at the value of similar estates, potential growth in the area and how the market will react in the next few years. Perhaps there is a real demand for rented accommodation in that area and working on a block of flats is a good opportunity. Understanding your motives is key – such as a buy to let or selling the property once renovated. By confirming that the opportunity you are bringing to the table is a good one, it gives the lender confidence that they will be able to retrieve the funds that they lend you. So getting an idea of the project and its plans is vital.
Regulated lenders will always take your credit history into consideration. By accessing information from other credit reference bureaus such as Experian and Equifax they get a good idea of how well you have paid other kinds of mortgages, loans and credit cards in the past. Plus, they can see your debt-to-loan ratio and make an informed decision based on your creditworthiness. For non-regulated or ‘non status’ lenders, carrying out a credit check is not a requirement and instead they may be more interested in the potential and value of your security and investment opportunity. This means that non status lenders may be more likely to lend to those with bad credit, however, it always depends on the lender’s criteria.
Similar to credit checking, the affordability measures aim to match the amount that the customer wants to borrow with what they can afford to repay. Therefore, getting an idea of the person’s income is very important and companies may request proof by bank statement or pay-slips. The lender wants to know if this project in question is their full time income or whether they are a homeowner looking to move house or even part of a larger company with other assets, and therefore there is less risk. Effective affordability checks will change the amount that the customer has asked to borrow to reflect the risk and their ability to repay on time – perhaps lowering the amount.
The solicitors you work with are key to completing on the loan and financials for your new property. Every aspect of the loan and property must be checked by your solicitor before completing. This includes checking the valuations, loan amounts, parties involved and any other potential issues with the property. Provided that the solicitor is happy with everything, they can provide you with the documents to sign and send back to the bridging lender and then finally, the funded can be released!