News

Underwriting – ”Any fool can lend money, the skill is ensuring you get it paid back”

Published on August 25, 2015

The Loan underwriting process is critical in determining which loans are accepted onto the platform and which are not. When evaluating potential investment opportunities, it is imperative that investors understand the underwriting that has been performed and what information is available on the platform to allow them to evaluate the loan investments themselves.

 

What is “Underwriting”?

Underwriting is the process by which Borrowers’ Loan Requests are evaluated to determine their viability. This process includes collecting, reviewing, and analysing due diligence materials related to the borrower, the property, the tenants, and the leases. These various factors need to be assessed because they help determine the borrower’s ability to make the ongoing interest payments and repay the loan at the end of the term.

 

Our underwriting process ultimately determines which Loan Requests are made available to investors on the platform, and Proplend relies on our experienced team of property experts, with over 65 years of combined property finance experience, alongside third party professionals to help make those determinations.

 

  1. Initial Due Diligence

Following an enquiry from a borrower, Proplend collects the initial information and begins the due diligence process. We evaluate the Loan Request, the property and the borrower to ensure they fit within our guidelines and that the Loan Request makes commercial business sense. The majority of our Loan Requests are from borrowers who already own the property and are looking to refinance, therefore, they are usually able to quickly supply the required information on the property and tenants.

 

The first stage is concluded when the internal credit committee agrees to proceed and prepare a more detailed underwrite or to decline the Loan Request.

 

  1. Detailed Underwriting

INTERNAL

Borrower:

  • meet every borrower in person
  • conduct ‘Know Your Customer’ and credit checks
  • understand their property investment experience

Property:

  • visit every property
  • research the location and surrounding area
  • study comparable properties
  • conduct Land Registry searches

Tenant:

  • review tenancy schedule
  • analyse tenant covenants
  • produce a cash flow of rental income
  • pro-forma financial analysis
  • ICR/LTV sensitivity analysis

Business Plan Review:

  • why is the loan required?
  • what is the business plan?
  • analyse the risk / return profile
  • how will the loan be repaid?
  • define loan risks and rationale

Documentation:

  • Preparation of Loan Contracts
  • Preparation of the Security Documentation which may include:
    • Legal mortgage
    • Personal guarantee
    • Corporate debenture
    • Share charge

EXTERNAL

As well as internal due diligence, the following reports are instructed from third party professionals:

  • Valuation for mortgage purposes from a RICS qualified chartered surveyor
  • Legal report on the Certificate of Title from Keystone Law
  • Any other reports deemed necessary on a deal by deal basis

In addition, Borrowers always obtain their own legal advice.

Our underwriting team completes an extensive analysis and final review of all the above before the Loan Request is agreed and listed live on the platform.  The following is available for potential investors to read:

  • Loan Request document
  • Valuation report
  • Legal Report and Summary on the Certificate of Title

 

 

The underwriting team goes through a final review before any monies are released to the borrower’s solicitor on the day of the loan drawdown.

 

By the end of the underwriting process, less than 10% of all submitted requests will end up on the platform for investment. This is our commitment to quality.

 

Proplend does not offer advice or make recommendations. If you are in doubt as to whether investing via the Proplend platform is suitable for you, you should seek independent advice from a financial adviser or other professional.