Thinking · Deal Structure
Why Structure Matters More Than Rate
The cheapest money is not always the best money. In property finance, the structure of a facility often determines whether a deal has enough time, flexibility and resilience to reach its exit.
The principle
Rate is visible. Structure is what determines whether the deal can breathe.
Borrowers naturally compare finance by price.
One lender is 0.75% per month. Another is 0.85%. One arrangement fee is lower. One valuation fee is cheaper. On a spreadsheet, the comparison can look straightforward.
But property finance is rarely that simple.
A facility can be cheaper on headline rate and more expensive in practice if the term is too short, the net advance is insufficient, the works funding arrives too late, the covenants restrict the plan or the lender is uncomfortable with the real exit.
That is why I tend to start with structure before price.
The right question is not simply “what does the money cost?” It is “what does this money allow the deal to do?”
Once the structure works, rate becomes a meaningful comparison. Before that, it can be a distraction.
What structure actually means
A funding structure is much more than the interest rate.
When I talk about structure, I am talking about the whole architecture of the facility.
The facility term should reflect the time needed for works, legal process, stabilisation, sale or refinance — including realistic delay.
Gross loan size can be misleading if interest, fees or other deductions materially reduce the money available at completion.
Works funding, staged releases and conditions precedent can matter as much as the total facility amount.
Charges, guarantees, cross-collateralisation and lender controls shape both risk and flexibility.
Sales, refinances, title changes and other actions may require consent or trigger specific conditions.
The loan needs to finish where the borrower’s strategy finishes, not force an artificial decision before the asset is ready.
The danger of headline comparisons
The cheapest facility can become the most expensive mistake.
Imagine two loans on the same transaction.
Loan A has the lower rate. But it offers a smaller net advance, a shorter term and no flexibility if the refinance takes longer than expected.
Loan B costs slightly more each month but gives the borrower enough capital to complete the business plan, enough time to execute it and a cleaner path to the intended exit.
Which is cheaper?
The answer depends on what happens next.
If Loan A forces the borrower to inject emergency capital, refinance early, pay an extension fee or sell before the asset has reached its intended value, the apparent saving can disappear very quickly.
This is the broader point: price should be measured against the job the finance has to do.
Time
Term is one of the most underpriced parts of a facility.
Borrowers often focus heavily on monthly rate and not enough on how long the plan realistically takes.
A six-month bridge can look cheaper than a twelve-month one because fewer months of interest are modelled. But if the transaction genuinely needs nine months, the comparison is false from the beginning.
Property transactions have friction.
Works overrun. Planning takes time. Titles are registered. Leases are extended. Sales fall through. Refinance valuations take longer than expected. Credit committees change appetite.
The borrower should not automatically pay for more time than they need, but the facility should contain enough headroom to absorb normal uncertainty.
My rule of thumb: structure the term around a realistic execution timetable, not the fastest conceivable one.
Liquidity
A high gross loan is not useful if the borrower is short of cash.
This is where gross facility and net advance become important.
A lender may quote a large facility, but if interest is retained, fees are deducted and some funds are conditional on later milestones, the amount available on day one may be materially lower.
The borrower needs to know what cash is actually available to complete the acquisition, pay professional costs, fund works and carry contingency.
A theoretically generous facility can still create a liquidity problem if the timing of the cash does not match the timing of the costs.
I cover the gross-versus-net distinction in more detail in Bridging Finance Explained, because it is one of the most common ways borrowers compare two facilities incorrectly.
Leverage
More debt is not always a better structure.
High leverage can be useful. It can preserve equity, improve capital efficiency and allow an investor to pursue more than one opportunity.
But leverage also removes room for error.
If the facility funds the maximum possible amount and the borrower has very little liquidity left, a small valuation change or cost overrun can create disproportionate pressure.
This is why I am less interested in “how much can I borrow?” than “how much should this deal sensibly borrow?”
The answer depends on the asset, value-creation plan, borrower liquidity, exit and downside.
That links directly to What Makes A Property Deal Fundable?: leverage works best when it supports the plan rather than becoming the plan.
Matching capital to purpose
Use the right money for the right problem.
Bridging can be powerful where there is a defined transition — acquisition, legal restructuring, works, stabilisation or another event — followed by a credible exit.
If the project needs staged capital, the drawdown mechanics, monitoring and contingency should match the programme rather than forcing the borrower to fund gaps personally.
A retained investment needs debt that can live comfortably with the rent, lease profile, tenant quality and wider ownership strategy.
Title splits and lease extensions are obvious examples where the facility has to understand the legal value-creation process rather than assess the property only in its current form.
The problem starts when the wrong tool is selected because it appears cheapest on day one.
Flexibility
Optionality has a value.
Flexibility is difficult to price until you need it.
A facility may allow partial sales. Another may require full redemption. One lender may be comfortable with title changes. Another may need every variation approved. One may permit a refinance extension if the exit is progressing. Another may move immediately into default pricing.
These differences rarely fit neatly into a headline rate comparison.
But they can become extremely valuable during execution.
I am not suggesting borrowers should always pay more for maximum flexibility. The point is to identify which freedoms the strategy genuinely requires and make sure the facility provides them.
Exit alignment
The best funding structure is built backwards from the exit.
For me, this is one of the most important principles in property finance.
If the exit is a refinance, the short-term facility should create the asset, income and legal position the term lender needs.
If the exit is sale, the facility needs enough time to complete the value-creation plan, market the asset and absorb reasonable transaction delay.
If the exit depends on title splitting, lease extension or another legal process, the term and lender consent mechanics should recognise that process from the start.
Finance should not simply get a borrower into a deal. It should help them reach the next logical capital position.
Good finance solves today’s problem without creating tomorrow’s one.
When rate matters
Rate still matters — once the structure is right.
This is not an argument for ignoring price.
If two facilities genuinely provide the same leverage, term, flexibility, security, drawdown mechanics and exit support, then rate and fees absolutely matter.
The mistake is comparing price before establishing that the products are actually equivalent.
A lower rate on a facility that does not fit the transaction is not a saving. It is a different product.
Once the structure is aligned, pricing becomes a fair comparison. Before that, it is often apples and oranges presented in the same percentage format.
A practical comparison
When I compare facilities, I look beyond the headline.
- What is the actual net advance?
- How much borrower cash is required at completion?
- Is interest serviced, retained or rolled?
- What is the realistic total cost over the expected term?
- What happens if the facility runs longer?
- Are there extension fees or default-rate triggers?
- How and when are works funds released?
- What lender consents will be needed during the strategy?
- Can assets or units be sold individually?
- Does the lender understand the planned exit?
- Is there enough headroom for normal friction?
That list does not make rate irrelevant. It makes the rate meaningful.
Final thought
Structure first. Then compare price.
The most expensive finance is often not the finance with the highest rate.
It is the facility that does not fit the transaction.
When finance is structured properly, the borrower has enough capital, enough time and enough flexibility to execute the plan. The lender understands what is happening and why. The exit has been considered from the beginning.
That creates resilience.
Then — and only then — rate becomes the right question.
For me, that is the principle behind structure-first finance: the product should serve the strategy, not force the strategy to bend around the product.
General information only. This article reflects my experience of property finance and deal structuring. It does not constitute financial, legal, tax, valuation or investment advice. Lending terms and suitability depend on the individual transaction, borrower, security and lender criteria.