A Broker's Guide To Short Term Finance

Navigate the world of private lending with confidence.

Introduction

As the funding markets continue to evolve and timeframes to fund scenarios become more uncertain, many brokers will need to turn to short-term finance to bridge the gap. Our experience is that brokers who previously had never had to broker a loan in this space are largely unsure of where to start the search for solutions. The brokers we have spoken with advise that the process is daunting, with the market not an easy space to navigate. Hence why Secured Lending has now provided a Brokers Guide to navigate you through the world of private lending.

The 5 Questions You Need to Ask Your Clients

1. How do you know whether your client needs short term finance?

There are several signs that can indicate that a client may need short-term finance. Some of these signs include:

• •Cash flow issues: If a client is struggling to meet their financial obligations, such as paying bills or employees on time, they may need short-term finance to manage their cash flow.
• •Lack of working capital: If a client is unable to purchase inventory, pay suppliers, or invest in new equipment, they may need short-term finance to increase their working capital.
• •Unexpected expenses: If a client has experienced an unexpected expense, such as a natural disaster or equipment breakdown, they may need short-term finance to cover the costs.
• •Seasonal fluctuations: If a client operates in a seasonal industry, such as retail or tourism, they may need short-term finance to cover the costs of preparing for peak seasons.
• •Growth opportunities: If a client has an opportunity to expand their business, such as opening a new location or launching a new product, they may need short-term finance to take advantage of the opportunity.
• •Credit history: If a client has a poor credit history or lack of collateral, they may find it difficult to qualify for traditional long-term loans and may need short-term finance as an alternative.

By identifying these signs, you can help your client understand whether short-term finance would be a suitable solution for their needs. It is important to have a conversation with the client to understand their financial situation and business model to help them make the best decision.

Most short-term solutions by their nature are not cheap compared to traditional banks. So it's not surprising that borrowers don't wake up one day and say "wouldn't it be nice to pay a rate 3 or 4 times more than my current bank rate". In fact, what typically happens is borrowers try to get a loan through cheaper means and learn that either the timeframe to funding or other reasons mean this is currently not possible. Short-term loans are used by borrowers to meet funding needs where a mainstream lender simply cannot meet the funding timetable or will not fund the client for the current purpose or in the current circumstances.

• •SPEED MISMATCH – An opportunity to acquire an asset/business requires a speedy finance solution which many lenders simply cannot meet.
• •SERVICING MISMATCH – The borrower is unable to demonstrate servicing of the loan to meet the requirements of mainstream lenders.
• •PURPOSE MISMATCH – A borrower has outstanding ATO debts, a winding up application, default notices, bad credit ratings and many lenders will not provide funding for these purposes.
• •DOCUMENT MISMATCH – The borrower has not undertaken all their tax returns and mainstream funders are seeking such returns before they will fund.

2. What securities are being provided?

Short term lenders require some form of real property as security and their loan to value ratios are dependent on the risk, scenario and location of the proposed security. Most short term lenders will obtain a valuation report to support the assessment values of the proposed security. It is important for brokers to take into consideration the timing of such requirements from short term lenders as a valuation report can take up to 3 to 5 working days to complete, sometimes even weeks, when the property is more complicated.

3. Is the short term loan for business purposes?

An assessment of whether the loan is subject to the National Consumer Credit Protection Act ("NCCP") is required by most short term lenders. A business purpose declaration and corporate borrowing entity will generally be the minimum requirement. A large-portion of short-term lenders only lend to corporate borrowers.

4. How urgent is urgent?

Although short term loans are easier to get funds than from the Bank, there are a number of factors that can delay funding / settlement and it is important for a broker to understand the specific requirements of the short term lender and the timing implications of same. Examples of circumstances that can delay funding are:

• •Valuation Reports
• •Negotiation and obtaining a Deed of Priority with the first mortgagee
• •Collating documents to support the application (financial reports, birth certificate, tax returns etc)
• •Credit Information Memorandums, which are prepared by some short term lenders that are raising capital and seeking funds from their investors.

5. What term does the client need?

Term of the loan is a critical consideration. Most borrowers will try to get the best of both worlds being surety of a longer tenure of a loan but with the flexibility to repay the loan earlier. All short-term lenders have different requirements relating to term. From the lender's perspective the lender is also looking for certainty and wants to be able to plan their funding around repayments of loans. The longer the term the borrower seeks may impact the LVR the lender is willing to provide as the lender is being asked to take a longer-term view on the value of the assets being offered as security. Some lenders have minimum terms of 3 months so if the borrower only needs a 1 month loan this may not suit that particular lender.