A refusal from a bank is information, but it is rarely the information the borrower thinks it is. Banks decline transactions for reasons that often have nothing to do with whether the transaction is sound: a sector currently out of appetite, a borrower profile that does not fit an automated scoring model, a jurisdiction the committee does not want to explain, a file that arrived incomplete and was never resubmitted, or simply a lending target already met for the quarter.
Separating those reasons is the first useful step, because some of them mean the deal needs a different lender and others mean the deal needs to be rethought.
Reasons that mean look elsewhere
The borrower has no local credit history. This is the most common reason an international client is declined in Spain, and it says nothing about the risk. A lender that underwrites the asset rather than the scoring model will look at the same file differently.
The timetable does not fit. A bank process measured in months is incompatible with an auction deadline, an option expiring, or a seller who has another buyer. Speed has a price and sometimes the price is worth paying.
The asset is unusual. A building with mixed uses, a plot mid way through a planning process, an operating asset where value depends on the business. Committees prefer categories, and an asset that does not fit one is declined without the underlying economics ever being examined.
The structure is foreign. A property owned through a Dutch, Luxembourg or offshore company can be entirely orthodox and still exceed what a regional bank branch is equipped to process. Our note on cross-border financing for Spanish assets deals with that situation directly.
Reasons that mean stop
The exit does not exist. If repayment depends on a sale at a price the market has not paid, or on a refinancing nobody has indicated appetite for, a more expensive lender does not solve the problem. It converts a difficulty into a crisis with a shorter fuse.
The equity is not there. Leverage cannot substitute for capital that was never contributed. A borrower seeking to finance the deposit as well as the purchase is asking a lender to take equity risk at debt pricing, and the answer will be no from everyone who understands the request.
The numbers do not work at any cost of money. Some projects are viable at bank pricing and not at private debt pricing. That is a legitimate finding, and discovering it before signing is a good outcome rather than a failure. A serious adviser will say so.
Alternative finance solves a timing problem or an underwriting problem. It does not solve an arithmetic problem, and it is at its most dangerous when used to postpone one.
What the alternative actually is
Non-bank lending in Spain covers a spectrum. At one end, specialist lenders funding transitional situations against real estate security, in weeks rather than months, at a cost that reflects the speed. In the middle, private credit funds taking larger positions on income producing assets. At the other end, family offices and private investors lending against collateral they understand, often in their own region.
What they share is that the asset carries the underwriting and the exit carries the decision. What differs is ticket size, appetite for construction risk, tolerance for foreign borrowers, and how much of the process is genuinely their own money rather than a syndication that has yet to be assembled. That last question is worth asking directly, because a lender that has to raise the money after issuing the term sheet is a lender whose timetable is not its own.
Who is allowed to lend
The legal starting point explains why this market exists beside the banks. Article 3 of Ley 10/2014 on the regulation, supervision and solvency of credit institutions reserves to authorised and registered credit institutions the raising of repayable funds from the public, whatever their destination, in the form of deposits, loans, temporary transfers of financial assets or similar. What that article reserves is the funding side of banking. Lending out of capital that was not raised from the public as repayable funds falls outside that reservation.
Some non-bank lenders take a regulated form all the same. Article 6 of Ley 5/2015 on the promotion of business finance allows companies that are not credit institutions to be constituted, with prior ministerial authorisation, as establecimientos financieros de crédito, dedicated professionally to one or more of the activities it lists, lending and credit among them. Its fourth paragraph prohibits them from raising repayable funds from the public, save for a route through securities issues under the requirements and limits set specifically for them.
The picture changes when an individual is involved. Under article 2(1) of Ley 5/2019 on real estate credit contracts, the law applies to loans made by persons who lend professionally where the borrower, surety or guarantor is a natural person and the loan is secured by a mortgage or other real right over residential property, or has as its purpose acquiring or keeping property rights over land or buildings, built or to be built, where that borrower, surety or guarantor is a consumer, subject to the exclusions listed in its fourth paragraph. The same article treats mortgage lending as professional when the lender acts in the financial services market on a business or professional basis or, even occasionally, with an exclusively investment purpose. Article 42 then allows the professional granting or management of those loans only to real estate lenders entered in the corresponding register, kept by the Banco de España or by the competent regional authority depending on where they operate, while credit institutions, establecimientos financieros de crédito and Spanish branches of credit institutions need no such registration. A private investor lending to an individual against a residential property is therefore not outside regulation merely because it is not a bank. Professional mortgage lending to a consumer, in the sense of article 1 of Ley 2/2009, by a lender that is not a credit institution and outside the loans that article 2(1) of Ley 5/2019 describes, comes under that law and its own registration requirement.
Reading the offer properly
Compare total cost over the real period, not the annual rate. Arrangement fee, exit fee, interest, valuation, monitor, notary, registry, and the cost of any guarantee facility. On the tax side, article 29 of the recast Transfer Tax and Stamp Duty Law, approved by Real Decreto Legislativo 1/1993, has since November 2018 made the lender the taxpayer for stamp duty where the deed is one of a loan secured by mortgage. Then check the terms that decide what happens when something slips: default interest, the extension mechanism and its price, whether extension is a right or a request, and what triggers an event of default. A facility that is cheap while everything goes to plan and punitive the moment it does not is not a cheap facility.
Check the security package against what is actually being asked. A first charge over the asset is normal. A personal guarantee on top of full asset cover is a negotiating position rather than a requirement, and it should be treated as one. We deal with that balance in our note on private debt secured on Spanish real estate.
What the security is, and how it is enforced
A mortgage granted to secure a loan exists as security only once it is registered. Article 1875 of the Civil Code makes registration of the document in the Registro de la Propiedad indispensable for the mortgage to be validly constituted, and article 145 of the Ley Hipotecaria requires, for a voluntary mortgage, both a public deed and the registration of that deed. The registry step therefore belongs inside the timetable, not after it.
Registration also shapes enforcement. Article 130 of the Ley Hipotecaria allows the direct enforcement procedure against the mortgaged property only for a registered mortgage, and on the basis of the terms of the deed that were recorded in the registry entry. Article 682 of the Ley de Enjuiciamiento Civil applies the special procedure for mortgaged property only where enforcement is directed exclusively against the charged assets and the deed states two things: the price at which the parties value the property to serve as the auction reference, which may in no case be below 75 per cent of the valuation made, where there is one, under article 18 of Real Decreto-ley 24/2021, and an address fixed by the debtor for demands and notifications. If the deed omits either, enforcement of the mortgage falls outside that chapter.
For a borrower, the practical consequence is that the auction reference figure is set in the deed at signing, not at default. It deserves the same attention as the default interest.
When an individual signs
A loan to a company with no individual standing behind it as surety or guarantor falls outside the scope that article 2(1) of Ley 5/2019 sets. A personal guarantee from a shareholder, on a loan made by a professional lender and secured over residential property, is enough to bring the facility inside it under letter (a) of that article, subject to the same exclusions. Article 24 then fixes when the lender may call the whole loan in the cases it covers: the borrower must be in arrears on capital or interest, the unpaid instalments must reach at least 3 per cent of the capital granted if the arrears arise in the first half of the term, or 7 per cent in the second half, a threshold also treated as met by twelve and fifteen months of unpaid instalments respectively, and the lender must have demanded payment, allowing at least one month and warning that it will otherwise claim the full amount. The conditions must all be met, and the article admits no agreement to the contrary.
Default interest follows a different rule. Article 25 of Ley 5/2019, mirrored in the third paragraph of article 114 of the Ley Hipotecaria, applies to a loan concluded by a natural person and secured by a mortgage on residential property: default interest is the ordinary interest plus three percentage points, accrues only on principal that is due and unpaid, and may not be capitalised save in one case the Ley de Enjuiciamiento Civil provides for, again with no agreement to the contrary. That wording differs from the borrower, surety or guarantor formula of articles 2 and 24, and does not say whether it reaches a loan in which only the surety or guarantor is a natural person. Where a facility falls outside it, the article does not set the default rate, which is why that rate belongs on the list of terms above.
The honest sequence
Establish why the bank declined, in writing if possible. Fix what is fixable, which is usually the file rather than the transaction. Test the exit against a pessimistic case before approaching anyone. Then take a complete file to lenders whose appetite actually matches the asset, rather than to whoever answers first.
Borrowers who follow that sequence generally find that the market is wider than the refusal suggested. Borrowers who skip it generally find the same lender who declined them, wearing a different name and charging more.
Montclare structures and arranges financing secured on European assets, and prepares the corporate and tax structure that sits behind it. Our services are set out on our services page.
This article is informational and does not constitute tax, legal or financial advice. Lending and credit intermediation are regulated activities and the treatment of any transaction depends on its facts. Each engagement is subject to scope and applicable regulation.