25.09.09

All borrowers understand the mantra that “cash is king”, but fewer know what makes bankers tick, particularly when negotiating an impaired or defaulted loan.

Property Week surveyed leading bankers and financial advisers and compiled the top 10 rules bankers wished borrowers understood when at the negotiating table.

1 Don’t threaten us 

Using direct or veiled threats about “handing back the keys“ will only make negotiations tense. “It doesn’t go down well and is irritating when the bank is owed a lot of money,” says one banker.

2 Look ahead 

If there is a problem, approach the bank early.

3 Tell us why you should still be managing a property when you have no equity

Borrowers must present a convincing and realistic business plan for managing the asset and repaying the loan. Max Sinclair, head of Eurohypo’s UK division, says: “Be open about when you can provide further support.”

4 Give the bank some equity 

Don’t prevaricate on this. If you have equity, inject it into the loan. This is a far stronger statement of your confidence in the asset and your ability to repay the loan than a “PowerPoint strategy on asset management”.

5 Learn to “horse trade” effectively 

If you have a good loan and a bad loan, add them together, or pay more back on the good loan. Inject new assets into a loan or sell others. Extend the hedging arrangements. Be creative.

6 Offer guarantees 

Interest shortfall-cover guarantees in particular can help.

7 Co-operate 

Work in consensus with the banks, even when other parties become involved.

“If the borrower has lost the faith of the bank, but co-operates when a third party is brought in to sort things out, the original borrower stands a chance of sharing in any recovery situation,” says one banker.

8 Transparency 

Don’t lie, don’t divert funds, and don’t hide information. Savills head of UK valuations William Newsom says: “One bank lender told me that he found that, when the going gets tough, some borrowers get devious. If that happens they won’t get a second chance.”

9 Don’t be too optimistic 

It takes years to repair bad loans, so be prepared for the long haul.

10 Understand our costs 

Know what impacts the banks’ balance sheet and use it to your advantage

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Source: Property Week (www.propertyweek.co.uk)