When the bank doesn’t like the project why would we lend funds on it?
As a extremely conservative lender we look at four essential criteria.
1. What is the value of the property, in its present state?
Before we do anything, we have an appraisal from an accredited appraiser who is usually certified with an AACI, P.App designation. AACI stands for “Accredited Appraiser Canadian Institute, Professional Appraiser” the highest certification in Canada. We use appraisal companies who have the reputation of being experienced, ethical and precise. In some cases, a property tax assessment will be sufficient for valuation. These Alberta based firms give you the fair market value as opposed to a range or average value that is the basis for our financing decision. We lend, up to a maximum of 75% on the lower of the purchase price or appraised value, which ever is less, of that project. This helps protect our exposure that could occur in the case of a default.
2. Does the applicant have a minimum of 25% in cash, real estate or other liquid assets?
This eliminates the vast majority of borrowers but ensures the borrower carries a major interest in the project and is very serious about seeing the project through completion.
3. Exactly what is the business strategy and the reputation of the applicant?
Every application is reviewed by us to be sure the plan of the borrower makes financial sense. We use over 25 years of combined expertise plus external consultants, if needed to ensure the project is as feasible as advertised.
Most loans are for a maximum term of one year. This happens to ensure the applicant is very motivated to finish the project and repay the borrowed funds by the due date. Due to our strict lending conditions most borrowers need to have extensive experience working with large and small urban centre councils and Municipal District councils.
4. What’s the exit strategy?
This basically means, in one year when the loan matures does the applicant have the capacity to pay the entire amount of the borrowed funds back?
This last point eliminates most requests if all other requirements have been met. This hurdle particularly targets applicants who are serious in taking a project and enhancing it’s saleability to the point where they can pay all costs plus make a profit, inside of one year.