When providing corporate loans for property development, thorough due diligence is essential to safeguard the lender’s interests and ensure the viability of the project.

As a specialist lender, we follow a rigorous process to assess the risk associated with each loan application. This process involves a series of checks designed to verify the legitimacy, financial stability, and project feasibility of both the borrowing entity and the individuals behind it. Here’s a closer look at our due diligence process.

1) AML and CTF Considerations: Verifying Identities

Before entering into any financial relationship, our first priority is ensuring compliance with Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF) regulations. We request valid photographic identification from the guarantors of the proposed loan and run thorough checks using www.smartsearchsecure.com. These checks are not limited to the guarantors; they are also extended to the borrowing entity and any other key companies associated with the borrower. This step helps us confirm that all parties involved are legitimate and that there is no immediate risk of facilitating illegal activities through the loan.

2) Due Diligence on the Borrowing Entity

The majority of our loans are extended to legal entities such as limited companies or LLPs. To ensure that these entities are financially stable and free of legal complications, we conduct a detailed review using the Companies House Register. This sense check allows us to verify that the borrowing entity is not undergoing administration or liquidation processes. Additionally, we assess whether other lenders have registered charges or security over the entity, which could impact our position as a lender.

3) Evaluating the Guarantors

Beyond the borrowing entity, it’s crucial to evaluate the financial health of the proposed guarantors. We request full asset and liability statements from these individuals and meticulously test the information provided. This includes asking for bank statements to reconcile mortgage balances, conducting Land Registry searches to confirm property ownership, and seeking independent valuations on these property assets. We may also request details on their personal tax situation to ensure all records are current and accurate. This step is vital in assessing the guarantor’s ability to support the loan in the event of default.

4) Assessing the Property

The property being developed is often the primary security for the loan, making it critical to conduct comprehensive due diligence on it. We start with Land Registry searches to confirm ownership and any existing charges. If the property is a development or construction project, our due diligence extends to reviewing planning discharge conditions, architectural drawings, and all documents related to planning permission, such as surveys and design statements.

Our in-house team of surveyors appraises construction programs and schedules to ensure they are realistic and that the project has a feasible timeline and budget. This involves a detailed analysis of the project’s potential costs, revenues, and overall financial performance. The study typically includes a cost-benefit analysis, potential resale values, and an assessment of any risks that could impact the project’s success. This helps mitigate the risk of cost overruns or project delays that could jeopardise the loan.

5) Market Conditions and Feasibility Analysis

Lenders must assess the broader market conditions and the overall feasibility of the property development project. Understanding the current state of the property market is key to evaluating the potential success of a development. This includes analysing local and regional property trends, such as demand for new housing or commercial spaces, economic factors that could influence property values, and the level of competition in the area. By integrating market research and feasibility analysis into our due diligence process, we add an additional layer of protection, ensuring that our loans support projects with a realistic chance of success in the current market environment.

6) Legal Due Diligence

Legal due diligence is another cornerstone of our risk assessment process. We engage third-party legal representation for every new loan case. This legal team conducts all necessary property and local authority searches, and bankruptcy checks, and reviews the title of the target property. They also ensure that all required loan documentation and insurance certifications are in place before the loan is finalised. Their report to us provides a comprehensive view of any legal risks associated with the loan, borrower(s), and the property.

7) Ongoing Due Diligence: Monitoring the Loan

Our due diligence doesn’t end once the loan is approved and disbursed. Ongoing monitoring is essential to manage our risk and respond to any changes in the borrower’s situation. We continuously assess the borrower’s financial health, the progress of the development project, and any new risks that may arise. This proactive approach helps us ensure that the loan remains secure throughout its term.

Conclusion

Due diligence is an integral part of the lending process, particularly in the complex and often high-risk area of property development. By conducting thorough checks at every stage - from verifying identities and assessing financial stability to evaluating the property and legal risks - we protect our interests as a lender and ensure that our loans are supporting viable, successful projects. This meticulous approach not only helps mitigate risks but also strengthens our relationships with borrowers by providing them with the confidence that their projects are being financed efficiently and responsibly.

For further guidance or to discuss your financing needs, reach out to our team at Onyx Money info@onyxmoney.co.uk. We’re dedicated to helping property entrepreneurs achieve success with the right financial solutions.

We also keep on top of market trends and ensure our customers are kept informed of any changes that might affect their borrowing, projects, and investments – see the Onyx blog for all the latest insights.