Wealthy clients tend to be ‘citizens of the world’, with assets across multiple jurisdictions along with income from a variety of sources.
This can make lending – whether for residential or commercial purposes – far more complex for this cohort than many realise.
Lending should be a key part of the wealth management and advice process, yet there is an array of hurdles high-net-worth and ultra-high-net-worth clients face in regard to lending.
This article will look to explore the challenges they face and how wealth firms can solve these problems.
Common hurdles for HNW/UHNW borrowing
Often, we are approached by HNW and UHNW clients at the point of a financing need, with the client under-appreciating the time required to process loans for more complex cases, especially if these involve mainstream mortgage providers.
Rather than weeks, a loan application for a HNW with more complex needs can sometimes take months if the transaction is not approached in the right way from the outset.
Common complexities facing HNW/UHNW borrowers, include:
- ownership structure and jurisdiction of asset;
- income structure (or indeed a lack of income) and jurisdiction of borrower;
- type of asset (residential, commercial, corporate, industrial, luxury goods, investments);
- client age;
- historic source of wealth; and
- requirement for Sharia-compliant Islamic finance.
With each added element of complexity that HNW and UHNW clients exhibit, the available lender net gets smaller.
Even these clients can quickly become caught out by mainstream lenders.
Any client who has all, some, or a combination of the above will find it extremely difficult to navigate the lending market and the available options to them.
By working with experienced international finance brokers, clients leave the heavy lifting to them, and they can spend the time required to position and articulate the various nuances with the lenders in a way that means the lending application has the best chance of being approved and completed.
Complex ownership structure of assets being lent against
Lending work with HNW and UHNW clients worldwide can involve assessing a number of different asset ownership structures, which are established to protect the underlying client and be as tax-efficient as possible across multiple jurisdictions.
Examples of these would include limited companies/single purpose vehicles, partnerships, trusts, foundations, and private trust companies.
Once we have understood the client’s circumstances, we then need to match the ownership structure and jurisdiction with lenders who will both understand the structure and have an appetite to lend to it.
This involves working collaboratively with the client’s lawyers and accountants to articulate the complexities of the structure in a clear and precise manner so the client’s case is optimally positioned to have the best chance of ensuring the lender can proceed all the way through to completion.
In addition, the international nature of HNW clientele means we are often dealing with cross-border ownership structures.
This adds another layer of complexity to the lending process.
Each jurisdiction has its own set of regulations and tax implications, which must be navigated carefully to ensure compliance, and to optimise the lending terms for HNW and UHNW clients.
