PROPERTY companies need to look beneath the surface and conduct due diligence before they take out a loan in the current difficult economic environment, according to Australia’s largest non-bank corporate lender Metrics Credit Partners (Metrics).
Metrics which has lent over $9 billion to corporates warns companies seeking finance that during economic downturns some lenders can fail to produce committed capital, leaving borrowers with a funding gap.
Metrics managing partner Andrew Lockhart said this happened during the global financial crisis.
“We saw this during the GFC where a number of construction projects were thrown into turmoil because the lending environment had changed,”
“It is therefore important for borrowers to do their homework and ensure they are not also taking on lender risk when they apply for a loan,” he added.
Lockhart said important factors to consider when researching a lender’s ability to deliver were the certainty and source of its funding and its power in the decision-making process.
“Borrowers should assess whether the lender has the authority to make investment decisions, or whether they have to go through an external investment committee that is not known to the borrower.
“In construction projects there are times when decisions have to be made during the course of the project. Company management therefore want to know that they are talking to the decision-makers who are based locally and can work with them through that process,”
He added that companies should also pay attention not only to the interest being charged, but equally the terms and conditions on offer.
“Certain non-bank lenders have a high cost of funding and may charge higher margins than the market requires. Other lenders offer terms and conditions that are in their favour, so you might see features such as minimum earnout periods or early termination penalties.
“Borrowers really need to dig into the detail, as often the interest rate or fee is only part of the story,” Lockhard said.
