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Greek Debt Crisis Is The Exit Strategy For Bridging Loans Clear

by Jim ONeil on June 5, 2011

in Personal Finance News

About a year ago, several heads of state, the IMF, and the Eurozone developed a financial bailout plan for Greece. Through their bridging loan, Greece was able to avoid immediate default. It is one year later and Greece is not able to repay the money, putting the countries that backed the loan in a difficult spot.

Over the past year and a half, the UK market for bridging has increased quite a bit. Lenders are now becoming more aware that a clear and sound exit strategy is necessary. This protects not only themselves but also borrowers.

An exit plan that involves sale of property is no longer sufficient because the market is relatively flat.

Other strategies are not problem-free. A refinance exit is much more complex than selling an asset. Simon Ismail with Goldentree Financial Services stated that it can be difficult to assess commercial refinance. This arrangement involves factors like lease terms, tenant covenants, and yields.

There will always be uncertainty when it comes to property-backed lending, no matter how much diligence is performed by a lender.

It is nearly impossible to estimate the number of borrowers who have used a short-term loan but have been unable to refinance or sell their property. In many situations, the lender would prefer to extend terms of repayment rather than be saddled with the asset.

Regentsmead CEO James Bloom stated that many lenders are likely to have multiple loans on the books where an exit strategy has not come to fruition.

Goldentree staffers have ceased relying on valuations. They now travel to view every property before making a lending decision. Tiuta Head of Business Development Gareth Lewis commented that communication with those who generated the business is crucial.

His team asks questions like whether borrowers can repay a bridging loan by selling the property or changing to a buy-to-let arrangement.

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