Project owner reliability assessment rules
Positive financing decision of a borrower can take place only if EstateGuru has all the necessary information about the borrower (including business model, collateral etc) and the relationship is based on a mutual trust principal.
If the borrower has been with negative credit history in EstateGuru and investors have experienced a capital loss with that borrower, then new loan application should be declined immediately.
Credit managers are responsible for data and quality in all parts of the loan application. All the info and data which is used for credit decision is documented and saved into EstateGuru’s system. Members of the credit committees and credit are involved in the credit process of a borrower as early as possible to increase efficiency.
EstateGuru’s loan application (memo) consists of three main parts:
1. Borrower information including background, financial statements, business plan etc.
2. Collateral information including description, type, valuation report etc.
3. Loan terms proposed by the credit manager including repayment source.
Financial risk is analysed based on financial statements of the borrower (or if the borrower is part of a group, then consolidated financials also) including revenue and costs, balance sheet structure, liquidity and debt coverage. Extraordinary revenues and costs should be taken into account.
Accepted risk criteria (ARC) based on the latest financial statements are used for assessing the borrower are the following:
· Interest-bearing debt (excluding loans from owners and off-balance sheet items etc) to EBITDA should be below 5.
· Equity ratio (including loans from owners) over 10%.
· Debt service coverage ratio over 1,1 if it is a loan with an annuity or equal repayment schedule.
· Interest coverage ratio over 1,6 if it is a bullet loan with no principal repayment before the maturity date.
If the borrower doesn’t meet the mentioned ARC, then this doesn’t lead automatically to negative decision, but it should be noted and taken into account in final decision and risks should be mitigated, if possible.
Based on loan application the system will automatically check, if possible if the customer has previous loans through EstateGuru with payment history, any late repayments or debts to other credit institutions or tax debts (external databases including credit bureaus are used). In case of any current or former overdue, they have to be commented in the application and typically solved/ended by the time of loan disbursement.
Based on application EstateGuru’s internal rating is calculated (minimum level of internal rating should be in general C).
Besides financial due diligence and rating calculation, legal due diligence is performed by internal and/or external legal counsels when credit transaction is complicated (decided by sales and risk department, but in general when it is merger or acquisition deal, not a standardized transaction, involvement of non-residents etc.).
Based on criteria set in EstateGuru’s AML policy borrowers must also fill in AML questionnaire and their background (including sanction lists) will be checked, if necessary.
The credit manager is responsible for identifying the customer’s representative. When identifying customer’s representative for the first time, credit manager check’s representative’s Photo ID. Copy of Photo ID has to be stored in the system. In case the customer’s representative acts on power of attorney, then a copy of the power of attorney should be stored in the system.
Credit manager and credit committee check regularly the financial and market information of a customer. Customer will provide EstateGuru with information about its financial performance upon request. In case of a considerable increase of the risk of customer failure, credit managers inform relevant credit committee about the risk increase.