Our lending criteria
A transparent decision-making process
Unlike many banks, Cobra Mortgage strives to eliminate surprises from our approvals process by communicating to our customers the criteria on which we base our lending decisions, and the reasons why we decide for or against making a commercial mortgage loan. We believe this results in positive business relationships, and helps protect us and the borrower against undue risk. Here are some of the factors Cobra Mortgage investigates when deciding whether or not to lend against a project.
Cobra Mortgage is a short-term development and construction lender, so one of the first things we typically try to determine is our exit plan – how and when will the loan be repaid? This can be through the sale of units, the sale of the entire project, or by securing long-term financing. Depending on the long-range plans for the project, we adjust our evaluation accordingly.
Ultimately, our customers are people, and we want to get to know them as part of our evaluation process. We try to understand their experience with the type of proposed project, their financial strengths, and, when applicable, the track record and strengths of any associated corporations. A borrower’s ability to infuse cash into a project also determines our comfort level with extending a loan and the amount we are willing to lend.
The market for a proposed project is a crucial factor. One of the first things Cobra Mortgage determines is what we believe the market acceptance and valuation of a project will be. Because we try to exit most projects within a period of 24 months, it’s important for us to have the confidence that a project will be sold through during that time, or that it will be a attractive to a long term commercial mortgage lender once complete.
As part of Cobra Mortgage’s evaluation process, we look at the budget, plans, people and projections in order to ensure the projected costs and sales revenue are realistic, and in line with similar projects. This includes an appraisal from a certified appraiser, which forms a starting point for the rest of our evaluation. Then we try to predict any changes in costs, market conditions, economic factors and other variables that can affect a project’s viability and outcome. Based on those projections, we determine what we think the future as-developed value of the project will be.
After we undertake our due diligence, we can determine whether or not to lend against a project, and the amount we’re prepared to advance. Obviously, we want to manage the risk to Cobra Mortgage effectively, but we also want to limit the risk to borrowers. Cobra Mortgage believes it’s unethical and unfair to lend money to a borrower that we believe may not be able to complete a project or pay us back, losing their equity in the process. What makes Cobra Mortgage different from other commercial mortgage providers is that we try to communicate the outcomes of our investigations to our customers, and help them understand our key decision points.