In the fast-paced world of real estate and corporate acquisitions, securing short-term capital swiftly and efficiently can be a game-changer. However, even asset-rich clients sometimes face challenges in raising additional funding due to stringent regulatory constraints like the Total Debt Servicing Ratio (TDSR) or having multiple properties that limit their ability to cash out additional funds due to LTV (Loan-to-Value) caps set by banks. Additionally, having a second charge is typically not practiced in Singapore as banks do not allow any negative pledges. This is where name lending comes into play, offering a viable solution for clients with substantial assets but limited borrowing capacity under conventional lending frameworks.

The Scenario

TDSR Constraints

Recently, at Rikvin Capital, we were approached by an asset-rich client with a portfolio of properties seeking to raise short-term capital for a new acquisition. Despite their extensive asset base, they encountered difficulties in securing the necessary additional funding due to TDSR (Total Debt Servicing Ratio) restrictions and LTV (Loan-to-Value) caps. TDSR, designed to ensure that borrowers do not overextend themselves, can sometimes hinder even the most financially stable clients from accessing the capital they need. Given this scenario, we managed to facilitate a fund to provide a short-term loan based on the client’s total net worth, as they had assets in excess of $180 million and liabilities of $99 million. We were able to raise an additional $5 million short-term loan within eight days.

Illiquid Private Shares Asset Constraints

The client owned a successful private company with prominent investors like Temasek and Sequoia, and the last funding round valued the company at a billion dollars. Despite owning 25% of the company, the client faced a liquidity crunch. Although he had property assets with low LTV loans, approaching a bank for an increment would have hit the TDSR roadblock. He needed funds for just six months for a lucrative investment opportunity. His profile was excellent, with positions on many boards. Given this, we facilitated finding a private credit fund to lend out $10 million based on his total assets and liabilities, and the loan was approved in just five days.

Equity-Rich but Cash-Poor Clients

We were recently approached by a client who was equity-rich but cash-poor, owning multiple properties and a significant amount of equity in a successful Private limited company. The client needed immediate capital to take advantage of a time-sensitive investment opportunity but was unable to liquidate their assets quickly enough. Banks were hesitant to provide a loan due to the client’s high equity but low liquidity and uncertain cash flows like dividends. . Understanding the urgency, we facilitated a fund that provided a $7 million bridge loan based on the client’s equity holdings and overall financial stability. The loan was secured and disbursed within seven days, allowing the client to seize the investment opportunity without delay.

Introducing Name Lending

To address this challenge, we have established partnerships with various Private credit funds that are willing to lend based on the client’s name and reputation and the strength of his assets. This innovative approach, known as name lending, leverages the client’s creditworthiness, business acumen, and asset portfolio to facilitate lending. It is important to note that name lending is primarily available to high-net-worth individuals (HNWI) or accredited investors.

How Name Lending Works

1. Client Assessment: The process begins with a thorough assessment of the client’s financial standing, including their asset portfolio, credit history, and overall reputation in the market.
2. Fund Partnerships: We collaborate with specialized funds that are open to providing loans based on the client’s name and reputation. These funds recognize the value of an asset-rich client’s potential, beyond what traditional lending metrics like TDSR might indicate.
3. Loan Structuring: A customized loan structure is designed to meet the client’s specific needs. This includes determining the loan amount, interest rate, and repayment terms. The structure is flexible, accommodating the unique financial situation of the client.
4. Due Diligence: Although name lending focuses on the client’s reputation, due diligence is still a critical component. This ensures that the client’s assets and business practices align with the lending criteria of our partner funds.
5. Transparency and Risk Evaluation: Clients are expected to be transparent in showing their assets and liabilities. This transparency accelerates the process by allowing the fund to accurately evaluate the client’s risk profile.
6. Loan Approval and Disbursement: Once the assessment and due diligence are complete, the loan is approved and disbursed promptly, enabling the client to proceed with their acquisition plans without delay.
7. Personal Guarantee: The lender will require a Personal guarantee on the loan.

Who qualifies for Name Lending?

Our Name Lending service is an exclusive financial instrument designed for HNWIs with multiple income streams and high-value assets which are pledged but haven’t been fully geared to the maximum LTV.

Qualification Criteria:

• Diversified asset portfolio
• Multiple revenue channels
• Temporary cash flow mismatch

This service provides a secure and strategic channel for addressing short-term capital requirements allowing individuals to realise their most ambitious business objectives.

Key Considerations for Name Lending

• Short-Term Focus: Name lending is designed for short-term financial needs. It must be used for meaningful reasons, typically aligning with the timing and strategic goals of the client.
• Higher Costs: Due to the unique nature of name lending and the associated risks, the cost is generally higher than traditional loans. Therefore, it is best suited for situations where quick, short-term capital is critical.
• Timing Mismatch: The higher costs and short-term focus of name lending are mostly due to the timing mismatch of incoming funds, making it imperative for clients to have a clear, strategic purpose for the loan.
• Eligibility: Name lending is typically meant for HNWI or accredited investors, ensuring that the clients have the financial stability and market reputation required for this type of lending.

Benefits of Name Lending

• Quick Access to Capital: Clients can access the necessary funds swiftly, bypassing the lengthy approval processes typical of traditional loans.
• Leverage Reputation: Clients’ established market reputation and business acumen play a pivotal role in securing funding.
• Flexible Terms: Loans are tailored to meet the specific needs and circumstances of the client, offering greater flexibility in terms and conditions.
• Overcoming TDSR Constraints: By focusing on name and reputation, clients can sidestep the limitations imposed by TDSR, unlocking additional funding potential.

Real-World Impact

For our asset-rich client, name lending provided a lifeline, enabling them to secure the short-term capital needed for their acquisitions. This not only facilitated their immediate business objectives but also reinforced their market position and growth trajectory. (Remember, name lending is not for someone who is on the verge of collapse, as the funds will look at the overall health of the assets and client reputation before considering lending.)

Conclusion

At Rikvin Capital, we specialize in asset-backed lending. From time to time, we receive requests for second charge loans or increases in LTV drawdowns. Since second charges are not typically practiced in Singapore, we have established relationships with funds that can consider extending loans based on name lending.

Name lending represents a strategic financial solution for asset-rich clients facing regulatory constraints like TDSR. By leveraging reputation and business acumen, it opens doors to funding opportunities that might otherwise remain inaccessible. At Rikvin Capital, we are committed to pioneering such innovative lending solutions, ensuring our clients have the financial agility to achieve their business goals.