How do non-bank lenders assess credit risk?
Non-bank lenders assess credit risk using a combination of documented assessment criteria, independent valuations, borrower due diligence, and active loan monitoring. Unlike banks that rely heavily on automated credit scoring and standardised policy frameworks, non-bank lenders typically apply a more individualised assessment process that considers the specific characteristics of each project and borrower.
What factors are considered in a credit assessment?
A comprehensive credit assessment in non-bank property lending typically evaluates the quality and location of the security property, the independent valuation and resulting loan-to-value ratio, the borrower’s experience and track record in property development or investment, the feasibility of the proposed project including total costs, expected end value, and profit margin, the borrower’s financial position and capacity to service the loan, and the proposed exit strategy and its reliability.
Why are independent valuations important?
Independent valuations are a cornerstone of responsible credit assessment. They ensure that the property value used to calculate the loan-to-value ratio is determined by a qualified third party with no financial interest in the outcome. This protects against overvaluation, which is one of the most significant risks in property-backed lending. Granor Capital obtains independent valuations from certified practising valuers on all security properties.
What is active loan monitoring?
Active loan monitoring involves ongoing oversight of each loan throughout its term. This includes tracking construction progress against budget and timeline, monitoring borrower compliance with loan conditions, reviewing quantity surveyor reports at each draw-down stage, assessing any changes in market conditions that may affect the security property, and managing the loan through to repayment or exit.
Related: Understanding LVRs | Independent valuations | Granor Capital lending
This article is for general information only and does not constitute financial advice.
