We finished off December with one of our largest months of lending to date. Thank you to our brokers for an amazing 2019, it’s only possible with your support.

Ok it’s time to get back to my pet peeve. Slimy private lenders.

Another deal we have just completed annoyed me again. We recently refinanced a borrower out from a situation which highlights a very important truism in lending. That is the test for any lender is not at the beginning of the loan but at the end or when changes are needed or a default occurs.

This borrower took one of the shiny new loans I see in the market. The rate was 7% prepaid for 12 months.

What could go wrong?

Well a default occurred after 3 months, the lender immediately appointed a receiver, charged default interest on top of the entire 12 month interest and with other fees and charges ended up with a 45% return. 

The default was of no consequence to the asset and could easily have been dealt with by a waiver. It took us 3 weeks to get a payout from the lender. 

So many lessons here! Please brokers, be vigilant on navigating your borrowers to reputable lenders as the implications can be disastrous. 

Keen to know more, check out the following links:

• The Secured Lending Product Matrix
• Download the E-Book. The Ultimate Guide to Short Term Finance
• Download the E-Book. A Brokers Guide to Fast Funding 
• The Work Hard, Play Hard Referral Program

#removethescumfromprivatelending #securedlending 

(1) Part-completed development with an insolvent builder – $4M 1st mortgage facility 

While Humpty hadn’t fallen off the wall, there were cracks everywhere with a lot of moving parts. Our in-house expertise allows us to assess the risk where others could only see obstacles. Working with the Administrator of the building company and the developer a deal was crafted to get the project moving.

(2) Knock knock no one is home – $1.3M 2nd mortgage facility

This opportunity came to us directly by a borrower who approached us with a refinance opportunity as their private loan was 1 week away from falling due. No problem we thought and we turned it around in 24 hours and we were ready for settlement. 

So this is where it gets just a little predictable by some in our industry. The borrower then spent the rest of the week trying to get a payout and when it finally arrived you guessed it the day after the term end date, a receiver was appointed and costs and payouts started to sky rocket. 

We increased our offer, paid out the lender, retired the receiver and will leave the post deal retribution in the borrower’s hands.    

For the uninitiated, the private funding world is a small industry so ask around for who is who in this zoo before you dive in. 

Keen to know more? CLICK HERE to find out more about:

• The Work Hard, Play Hard Referral Program;
• The Secured Lending Product Matrix; and
• Download the E-Book. The Ultimate Guide to short term finance.

  #removethescumfromprivatelending

Lesson 3: Speed of Funding – How to Determine the Reality of “Fast” Funding

So you need a fast funding solution? Most of the funders in this space seem to promise exactly that, so how do you work out how long a funder is actually going to take? It’s all about asking the right questions and doing your homework.

So here are the primary factors that influence speed:

Borrower factors 

1) If you are going for a loan you need to get your rates notices ready for the lender. 

2) There will be requirements relating to ID so make sure you have more then your licence when you go to sign documents. 

3) Pick a solicitor that is across mortgage documents to assist you. 

4) You need to know what mortgages and caveats are on your title and what their processes and timings are to refinance including payouts so there are no surprises. 

5) Where you have multiple loans with the same lender you need to understand whether the loans are cross collateralised. If they are you won’t be able to offer a lender one asset as security as the lender will need to take all the loan positions into account. 

Lender Factors 

1) For a second mortgage loan, does the lender settle with a caveat or require a second mortgage and a deed of priority with the first mortgagee? If it is the latter, then this can take 1-2 weeks depending on the first mortgagee. Some mortgagees won’t grant seconds so the only way you can get a second is via a caveat.

2) Does the lender need formal valuations? If so, it is unlikely they can fund in 24 hours as you can expect the valuation to take a minimum of a couple of days and typically one week or more waiting for the availability of the valuer. 

3) Which lawyers does the funder use? Some lawyers take 2 days to produce documents while others do it in hours.

4) Does the lender have their own money or are they raising it from investors? Check their website and that will tell you. If they have an investor page you can assume they will need to package up the deal and get investors onboard unless they hold the liquidity. This rarely happens in 24 hours.

5) Are they actually a lender? Many businesses in the market look like lenders but have no money and simply shop the deal around when they get it. 

Tip: If you are going to sign a term sheet and speed is important, then understand the reality of timing. Consider getting the Lender to incorporate a term such that their term sheet is void if they haven’t got unconditional loan documents to you by an agreed date. 

The reason we are known as the fastest in the industry, is that we use our own funds, we do our own in house valuations, settle with caveats on second registered mortgages and have the fastest lawyers and processes in the business. 

Keen to know more, check out the following links:

• The Work Hard, Play Hard Referral Program;
• The Secured Lending Product Matrix
• Download the E-Book. The Ultimate Guide to short term finance.

  #removethescumfromprivatelending

Lesson 2: Interest Rates – All that glitters is not gold

Lesson 1 I focused on term sheets. This post I will focus on interest rates and costs. 

This topic hit home to me this week when a broker called me about a deal and asked me to price a loan, which I did, to which he called me and said “I have a cheaper option”. 

“That’s ok” I said, but I was curious. “What was it?” I asked. The broker advised, “they are giving it to us for 0.2% per month less interest rate for a 2 month term”. My quote was a 3 month term.

The alarm bells rang. Here was a client whose exit was selling a property, being pushed into a 2 month deal, which effectively gave them only 2 weeks to sell and a 6 week settlement period. 

This structure made no sense to me and while it was the term that the borrower asked for, it was not what the borrower needed. All the risk now sits with the borrower. Extension of the loan is at the discretion of the lender. Some private lenders will write this loan as a loss leader, knowing it’s not the rate I want but I will get it at the back end of the deal. 

What the client needed was a 3-4 month loan (maybe the borrower asks for slightly more funds for interest coverage), interest capitalised for 2 months with a minimum term of 2 months and a term allowing them to repay early. 

We are currently in evolving times in terms of property selling periods and risks associated with purchasers completing on the purchase. Be alive to this when setting your deal and avoid the shiny rates with shark like terms. 

Tip 1: Be aware that a lower interest rate doesn’t necessarily mean the best offer for your client.  Most clients will be rate focused but it is in their best interest to look at the loan structure as a whole and determine the risks involved.

Does the loan term facilitate their proposed exit strategy? What buffer have you provided for possible delays? Make sure your client can adhere to repayment deadlines or finance the costs if they can’t.

Keen to know more, check out the following links:

• The Work Hard, Play Hard Referral Program;
• The Secured Lending Product Matrix
• Download the E-Book. The Ultimate Guide to short term finance.

#removethescumfromprivatelending

Who would of thought #removethescumfromprivatelending could get such a response. 

The questions that I was asked following the post and the obvious increase of brokers entering this space suggested to me more education is needed. So over the next posts I will unpick this world for you that will hopefully assist you navigate it safely.

Lesson 1: Term Sheets: The devil is in the detail

At last, I hear you say, you have found a lender that wants to fund your loan. After all, they have issued a term sheet when so many other funders have said no. Why would anyone issue a term sheet for something they don’t want to do? Right? Wrong. 

For some in our industry this is just a lure to bring the borrower in. A quickly produced term sheet following no analysis is your first sign of impending problems. The lender simply accepts the values provided by the borrower (even though he knows they are inflated) quickly issues a term sheet and says ‘yes, we will give you the funds on those numbers’. So where is the catch? 

Well, to proceed with the term sheet some private lenders ask for a large upfront fee or they inflate the valuation fee so they are making money off an eventual no. They are also reducing the borrower’s options by wasting time. 

But it doesn’t stop there, buried deep in some term sheets the terms allow the lender to caveat the borrowers property if the loan values don’t stack up. Clearly the Borrower or Broker has no control here and is exposed.

Ponder that one for a minute.

The Lender can charge you where they have decided not to proceed because their valuer gave them a different figure. When valuations come in less, the cost to the borrower has gone up by establishment fees being charged and interest even when no funds have been lent.

Tip 1: When negotiating a term sheet ask the lender to amend the terms so that if the lender doesn’t proceed for the full amount due to valuation related issues, no further costs are payable.

If they say no ask yourself why? You have paid for the valuation and they send an independent party to do it? Makes no sense unless there is a plan b waiting for you. 

Keen to know more, check out the following links:

• The Work Hard, Play Hard Referral Program;
• The Secured Lending Product Matrix
• Download the E-Book. The Ultimate Guide to short term finance.

Much like our feathered friends in a coal mine, reading the early indicators are essential for survival in such a volatile market. 

As a short term lender, we consider ourselves having a rather unique ability to see incremental small changes that have the ability to become larger issues. Such is our vantage point where everything happens quickly and simultaneously. 

In our world, there are no 20 year set and forget loans so we are constantly assessing did we get this one right or what’s changed and then shifting gears for the next one.

For the finance market, this visibility allows us to see the reasons borrowers are getting turned down by the banks and the evolving metrics required to get a deal approved.

Our vantage point also extends to the property market where we are seeing developers struggling to get pre-sales, recession notices being issued as buyers either try to avoid under-water property purchases or where lower valuations mean buyers can’t come up with the shortfall.

Agents are telling us they are fearful of how quickly the market has turned and where it may end. Last weekend I spoke to an agent who had 4 properties put to the market by auction and not one buyer registered. “Worst market in 20 years” he tells me as he shrugs his shoulders and walks off. 

Over the last couple of weeks, there have been a few deals in particular that have tweaked our interest in terms of what may be considered the next phase in this cycle: 

1. A property investor with a long term banking history that had multiple properties on interest only facilities. The bank decided to revert them to P&I. He simply does not have the servicing capacity being an asset trader and had to turn to private lending. Stuck between a decision of higher financing charges via private funding or selling assets into the current property market the borrower chose the former. At a 35% LVR, this clearly was not a risk based assessment from the bank but policy driven. 
2. A corporate borrower who was told by their branch manager that the Bank is reducing their corporate book in the area / branch and that they need to refinance or amortise the facility. The mind boggles how that can ever be deemed a reasonable reason. 
3. A deal scenario we had reviewed 3 months ago and passed on has now come back across our desk to refinance. Since looking at the deal 3 months ago property prices have slipped 15%. The borrower is now over leveraged, the lender that did the deal is now stuck and the only way out is a property sale. Makes me think how many loans financed at 70% LVR are now closer to 80% LVR a number that typically can’t be refinanced in the private lending space.
4. A deal we funded this week as a bridging loan has been with one of the majors for almost 2 months getting passed around. After reading the trail of emails between the borrower and the business banker,  it’s evident that the business banker simply had no idea what he can get funded anymore. How you could drag someone through a 2 month process and then say no is a sign of the level of uncertainty at the majors. 

What seems obvious to me is that borrowers no matter who they are, can no longer assume that their history and longevity with a particular Bank will be a ticket to a long life with the Bank.

There is a new breed of borrowers waking up to the world of private lending.

I would be interested in how other vantage points are seeing the current borrowing landscape? 

So what have we recently funded in the current crazy funding markets…

Bridging Finance to Purchase a Property

1st Mortgage – $6M

The client came to us needing urgent funds for a next day settlement. A number of our competitors had wasted the Borrower’s time having issued terms sheets, having received upfront payments and then decided the only thing they liked about the deal was the upfront payment. 

In order to meet the funding deadline, we sent our agents to inspect the property and related director properties immediately. The exit of the facility will be a refinance and working capital release from receivable finance from one of our trusted receivable funding providers. 

ATO Wind Up

1st Mortgage – $300K

This client had been trying to obtain a payment arrangement with the ATO to resolve a pending wind up hearing against her cleaning company. The Borrower was overwhelmed and incredibly stressed out as she had exhausted all other avenues to obtain finance.  

After a conversation with one of our team members, we managed to determine the best possible loan structure  to ensure the dismissal of the pending proceedings and a surplus of funds to assist with working capital.

Partly Completed Developments 

2nd Mortgage – $1.8M

The client needed funds across three commercial developments due to cost blow outs over the last two months. As a result of this, he was behind in paying his contractors which was only delaying works further.

Our expert property team inspected the sites and assessed the funding status of each development. After a consultation with the Borrower, we formatted a loan facility to suit the Borrower’s needs, which also accommodated for the possible fluctuation in future costs. We funded within 48 hours.

If you need no fuss, lightening fast, no games or monkey business funding up to $10 million, then wait no longer!

Keen to know more. Check out the following links:

• Typical Loan Scenarios we fund;
• OurProduct Matrix; and 
• Our Lending Process