A senior loan is a debt obligation issued by a single lender (A financial institution) to a developer or an investor. The lender gets a legal claim (first charge) above all other debt obligations of the borrower. Senior debt is considered senior to all other loans and debt, and it’s the first to be repaid. Senior loans usually offer a leverage going up to 60% of the loan’s value.
The traditional lenders offer between 50%-60% loan to value as senior loans with the senior interest rate. However, real estate developers and property investors have to achieve 40%-50% of the funds on their own. This situation is a challenging one for them most of the times, and that is one of the main reasons that they don’t realise deals – lack of property finance.
The borrower has to plan the entire loan carefully and wisely from the beginning that will suit his needs because if he accepts to take a senior loan from one financial institution, he will not always have the possibility to take another loan from another lender. There are situations that the senior lender doesn’t agree to accept a junior lender or there might be a dispute between lenders, but in the bottom line, the borrower can’t realise his real estate deal or project.
The property expert that may be a developer, a real estate investor, a landlord or an experienced builder thinks that he must achieve the senior property finance loan as well as to obtain the rest of the funds that are needed. Therefore he must learn or to be advised by an expert that is familiar with the different options of property finance and especially how to achieve the advantages of senior loan conditions (not always the loan) without losing the deal. He must also consider the whole terms of the lender including the senior lender approval for a second lender without a loan to value cap.
The legal issues between a senior lender and a junior lender can break the deal. The sponsor of the deal must consider accepting an offer which enables him to obtain his requirements and not to accept just one part of the finance before he has checked that all the lenders agree on the same term. Moreover, they had done deals together when one lender provided the senior loan, and the other lender had provided the second charge (junior) loan. If the lenders worked jointly in the past most chances that they will agree on the whole terms between them.
We at property finance partners are aware of a different situation that can break the deal because the sponsor of the property deal will not obtain the whole amount of property finance that he needs; therefore we structure different solutions to our clients. We assist them to achieve the best senior loan conditions possible, sometimes the highest senior loan (but not always, if there are better options) that suits their project, and on top of it, we structure other types of finance to assist them to realise their goals.