Risk management - including AML due diligence
Investors should at all times be aware that lending involves several risks which could result in a Borrower failing to meet its obligations under a loan – potentially leading to losses for Investors. Whilst Lighthouse goes to great lengths in its efforts to mitigate them, these risks can never be entirely mitigated. Investors should ensure these risks are fully understood prior to committing to a loan and they may wish to consider participating in a range of loans to help diversity their risk exposure.
A summary of key risks is set out below:
Planning riskThe risk that planning permission isn’t granted in the form anticipated or is granted subject to onerous conditions
Construction riskThe risk that building works aren’t completed, don’t meet minimum finish/quality stipulations or come in at a cost greater than budgeted
Funding riskThe risk that funding isn’t available to meet ongoing draw-down requests by a Borrower
Sales/Liquidity riskThe risk a property fails to sell in a timely manner at or near to expected value
Market riskThe risk that economic or market conditions negatively impact the value of an asset or the ability to refinance it
Security riskThe risk that the security over a property isn’t properly constituted and/or registered thereby compromising its priority and/or enforceability
Valuation riskThe risk the value attributed to a property (generally by a professional appraiser) is inaccurate
Fraud riskThe risk that a party furnishes false - or omits material – information intended to mislead for gain
Legal riskThe risk that relevant legal documentation is incomplete or unenforceable – or of an adverse change in the law
In addition to those conducted on Investors, Lighthouse completes exhaustive Know Your Customer (“KYC”) checks on Borrowers in compliance with TCI’s Anti-Money Laundering and Prevention of Terrorist Financing (“AML/PTF”) legislation.
Credit risk assessment
Lighthouse conducts a full credit assessment of every loan application – critical to which is a full understanding of the collateral (the property or other assets over which the loan will be secured) and the willingness and ability of the Borrower to meet his, her or its repayment obligations under the loan agreement.
Lighthouse will not generally arrange any loan which exceeds 60% of the value of the property being acquired or developed.
Integral components of a typical credit risk assessment will include:
Loan applications – which are considered on a timely basis by Lighthouse’s Credit Committee – require unanimous approval to be successful but such approval does not constitute a recommendation to a Lender to participate in that opportunity.