How the Best Mortgage Brokers Work with Private Lenders?

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MARKET INSIGHTS

July 4th, 2024

When it comes to property development and investment, the collaboration between finance brokers and private lenders plays a pivotal role in ensuring successful transactions. While baseline broker responsibilities include connecting developers with private lenders, streamlining applications, and mitigating risks, truly exceptional brokers go beyond these basics

Here’s a deep dive into the additional qualities and actions that set top-tier finance brokers apart, making them indispensable to private lenders, property development, and the investment landscape.

The bare minimum.

Before we jump into what makes a finance broker stand out, let’s look at the bare minimum so we have a baseline to build on. The below are elements we’d expect a finance broker to do — ticking boxes and essentially just doing the job required. 

  • Provide access to capital: Private lenders provide the necessary funding for property development projects. Finance brokers facilitate access to these funds by connecting developers with suitable private lenders so developers can get their big ideas off the ground.
  • Streamline applications: Private lenders can typically approve and disburse funds faster <link to Why Borrow From Non-Bank Lenders article> than traditional financial institutions. Finance brokers streamline this process further by managing the application and negotiation phases efficiently.
  • Aids risk mitigation: Finance brokers assist in assessing the viability of development projects and the creditworthiness of borrowers. By doing so, they help private lenders mitigate risks associated with lending — crucial for ensuring projects are financially sound and have a higher likelihood of success.
  • Takes on an advisory role: Finance brokers act as advisors to property developers and investors, guiding them through the financing process, explaining terms and conditions, and helping them make informed decisions. This support is invaluable in ensuring that developers understand their financial commitments and can manage them effectively.

The above components of a transaction are crucial — we’re certainly not trying to take anything away from the importance of these core tasks. But, completing them isn’t what makes a broker the hero when it comes to collaborating with private lenders. The brokers we’re talking — and actively looking for at Bowery — excel at these things (and a whole lot more).

woman in black blazer sitting on black office chair

The mark of an above-and-beyond finance broker.

Understands both sides of the coin.

Going beyond merely ticking the right boxes, the best finance brokers understand the intricate perspectives of the developer and the lender, facilitating a smooth and efficient project. They recognise that, while developers aim to secure timely funding for their projects, private lenders have specific criteria and risk assessments that must be satisfied. 

This dual understanding allows brokers to effectively bridge the gap, ensuring both parties’ needs are met

Understands and conveys non-negotiables.

Good brokers also know that specific lender criteria can change from one project to another. They skip the one-size-fits-all mentality, never make assumptions, and work with lenders to understand project-specific requirements. They expertly communicate these to developers, perhaps workshopping requirements that are malleable but always standing firm on the ones that are non-negotiable. 

A part of this involves brokers highlighting value rather than just cost, emphasising what is valuable to the client and how it can be delivered within the lender’s framework.

For example, specific lender needs that must be addressed might be retention clauses (a portion of the contract payment that is withheld until the project is completed and all potential defects or issues have been addressed). This can become a sticking point for builders, so an effective broker would intervene early — before an issue arises — by clearly discussing this non-negotiable requirement with the developer. This proactive approach helps avoid delays and misunderstandings.

Prioritises relationships & clear communication.

The best brokers don’t just facilitate transactions; they build lasting relationships based on trust and open communication. These brokers aren’t afraid to pick up the phone and discuss potential deals with private lenders directly. They tend to socialise ideas by exploring new thoughts with all parties before seeking feedback, refining those ideas, and facilitating a consensus.

This fosters a collaborative environment where both parties feel heard and respected.

Stays flexible & adaptable.

Effective finance brokers are adaptable and open to different models of engagement. They’ll intuitively “read the room” to understand how both parties prefer to communicate, taking charge when necessary or staying in the back seat if that’s desirable for a specific project. Whether they take a hands-on approach or work with a lender who prefers to communicate directly with the developer, their flexibility ensures that the process runs smoothly.

How a quality lender collaborates with finance brokers.

Keeps the middle-man. 

A common concern among finance brokers is the fear of being cut out of the deal once direct communication between the lender and the developer begins. The best private lenders ensure this doesn’t happen, taking extra measures so brokers aren’t bypassed. 

Instead, they include brokers in all communications, meetings, and decision-making processes. This transparency builds trust and ensures that brokers continue to play a vital role in the transaction. It also sets strong foundations for future partnerships. 

Supports less experienced brokers.

Not all brokers have extensive experience in construction or property development finance. However, that shouldn’t hold them back from new opportunities, and it certainly doesn’t mean they’re not good at what they do in a different context.

The best private lenders are willing to support and educate less practised brokers, helping them develop sound skills and knowledge. This mentorship ensures that even less experienced brokers can successfully navigate complex transactions, ultimately benefiting their clients.

A case study: disputes & the essential role of a top broker.

The situation.

Recently, we encountered a situation involving a developer and their contractor regarding insurance requirements. The developer, supported by the contractor, was pushing back against the insurance policy we mandated. The contractor argued that the specific insurance was unnecessary and not required. Despite our clear stipulations, they insisted on their standpoint, causing a week-long delay with time consuming back-and-forth communications.

The resolution.

We firmly communicated our stance to the developer and contractor, emphasising that the insurance requirement was non-negotiable. We reiterated that it’s not the contractor’s prerogative to dictate Bowery’s insurance needs — the requirement is set by us as the lender, and must be fulfilled. In the end, they agreed and the project was able to move forward without further delays.

What *could* have happened.

In this instance, we were handling this back-and-forth ourselves — which we’re capable of, comfortable doing, and well-equipped to do. However, having a good broker as a part of the project would have made a significant difference in this situation; that was our missing piece! 

A quality broker would have proactively clarified that the insurance requirement was a lender’s mandate, making the contractor’s opinion irrelevant. This would have saved valuable time and likely prevented the dispute altogether.

Final thoughts.

The relationship between finance brokers and private lenders is crucial in the property development and investment landscape. The best brokers understand and balance the needs of both developers and lenders, build strong and transparent relationships, and remain adaptable to different projects. By focusing on value, effective communication, honesty and ongoing support, they ensure successful and efficient transactions, fostering long-term partnerships where everyone wins.

A broker smiling behind his office desk

Let’s work together.

Bowery’s doors are always open to stand-out finance brokers looking to elevate their game and be a part of successful development projects. Whether you’ve got the qualities and actions that make top-tier brokers indispensable or you’re hungry to master them, we want to hear from you. 

Talk to our directors to explore how we can work together and learn how to introduce private lenders to your clients (if this is new territory for you).

Let’s do this.

You didn’t come here by chance.
You came here because you wanted to invest in your future. So, why wait?

Whether it was to invest or borrow, let’s take this first step together.

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