Dan Holden of HoldenCAPITAL says the perception of honesty and trustworthiness is an essential driver of credit decisions.
Credibility and integrity are critical commodities in the development finance arena, despite the continuing trend towards automated lending processes.
Credibility is defined as 'being trusted and believed in' while integrity is the quality of 'being honest and having strong moral principals'. The differences are subtle, but both are important when it comes to borrowing money.
Early in my career, a senior bank CEO hypothesized that when we first meet someone we extend him or her a default credibility level of 100%, and by their actions they can either maintain or reduce that perception.
He maintained that if they continued to meet all your expectations they retained their 100% rating, however if they dropped a ball they lost points, and the doubt in your mind that it could happen again in the future would always mean that they could never again acquire that perfect level of credibility, no matter how hard they tried to recover it.
While we can debate the merits of this view, the reality is that we are often required to demonstrate our credibility and integrity. This is particularly true in today’s development finance arena, where there is limited direct interaction between borrowers and lenders, with the process often conducted between an independent finance consultant and the lenders representatives.
While today your application is largely determined by the score your submission receives in a finance model, these two qualities still form a key part of the data entries critical to your approval.
If someone asked you if they could borrow money from them, it's likely that aside from asking why they needed it and evaluating the merits of their requirements, the first analysis that would go through your mind is 'are they honest and do I trust them to pay me back'.
Credit assessments undertaken by lenders apply similar principals by assessing someone’s credit ratings to determine their integrity in addition to measuring their financial capacity. The lender still wants to satisfy themselves on a personal level that when they lend you money they are dealing with someone who can be trusted to repay the loan.
Even in these days of more automated credit assessments, there remains a human element and to get your application input into the lenders system you first need to convince an individual decision maker that you are a worthy borrower. There are two key considerations to be taken into account to achieve this.
Choose your broker carefully
With a growing number of applications now processed via a specialist broker, it’s critical that your consultant has the requisite credibility and integrity to represent your project. If they can’t demonstrate their own credibility and integrity to your prospective lenders, you not only risk not getting your loan but also damaging the market perception of your project. Therefore it is essential that you ask them to demonstrate the integrity of their track record by providing examples of similar successful projects they have delivered. If they can’t do that, why would you place the success of your project with them? Also, ask for evidence of their accreditation with relevant lenders and membership of a representative body such as the FBAA who ensure their members maintain a strong code of conduct.
Don’t withhold information relating to past credit issues
Fearing a past default or problem loan in their credit history will ruin their chances of an approval, many would-be borrowers withhold all or some details from lenders and their broker. This is an area where many developers come unstuck. Clearly, if the story is particularly ugly it may well limit your chances, but it's better to disclose it upfront and, provided it can be demonstrated that you acted with integrity in your dealings in the matter, most lenders will appreciate a full and frank disclosure and be prepared to at least consider the application on its merit. Conversely, finding out about it from other sources during their credit process will almost certainly guarantee the loan will be declined. It will also put you offside with your broker as they too have a reputation to maintain and a good broker will expect the same level of disclosure in order to properly prepare your submission with an appropriate explanation.
The bottom line is that lending still involves a level of human judgement where the perception of your honesty and trustworthiness continue to drive credit decisions, so its critical that you give yourself the best possible chance of a positive outcome by demonstrating those traits and ensuring your broker does the same.
This is a sponsored article.
This article was written by Dan Holden of HoldenCAPITAL, a bespoke construction finance firm. HoldenCAPITAL arranges construction finance and invests in projects through their equity trust, HoldenINVEST. To discuss your project finance requirements please call (07) 3171 4200 or visit www.holdencapital.com.au.
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