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An Asset and Liability (A&L) statement forms part of every sensible credit application.
In its simplest form, it provides the lender an insight into the net asset value (NAV) of the applicant. But for more complex applications, the A&L allows the lender to assess so much more than just the LVR and the NAV of the applicant. This is especially true for short-term lenders where a planned exit involves refinance.
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Recently we received an application for a multi-million-dollar facility where the A&L statement was very sketchy. In this case, the intended exit was refinance, and adding to the application complexity were multiple assets and multiple parties on title – both individual and corporate. Further, there were properties divided between SMSFs and property trusts which shared the same corporate trustees.
As a bridging lender (as was the case in this instance), we were asked to provide funds to release one of the corporate entities from administration. This clearly adds a further complication but, with the external administration released, the introducer expected to be able to sell or secure development finance from a mainstream bank. This might sound like a reasonable asset loan, but clearly we have a duty of care not to put applicants into a contract which will knowingly cause further hardship. To be sure of this, we would need to estimate the likelihood of a sale or refinance, and to assess the latter, we need a detailed A&L statement.
An incoming bank will take a holistic view of risk, assessing the net asset position of the sponsors and completing a thorough assessment of the development project feasibility. As well as assessing the net asset position, they will also form a view on the applicant’s capacity to service any debt across all assets. If our applicant’s exit is to refinance, then we also need to assess serviceability – and without a detailed A&L statement, this is impossible.
A good A&L Statement should include the following categories: address, lot descriptors, named on title, estimated value, existing liability, lender, monthly income (if rented), statement/ account reference, and current pre-loan LVR.
When presenting this to a lender, send it with the most recent rates notices and mortgage statements for each property and related loan. This will save you and the lender an immense amount of time. It will improve the working relationship between both parties and achieve a quicker result for the client.
