08 Jun Case study – Short-term residual stock facility a win for borrower
IBN were recently able to assist a client with a short-term residual stock facility. Residual stock loans aren’t really talked about a whole lot, so we thought we’d share how we were able to assist our client to meet their needs and free up their time and cashflow to move on to their next property development project.
The borrower is a long-term client of ours, we have funded a number of residual stock facilities for him over the years to great success. On this occasion he had built a new apartment building, 1 apartment per level. Most had sold, one was under contract and the final listed for sale. The client’s development loan was coming due and he wanted to pay the facility out in full.
Extending with the current funder was not an option due to the increase in rate that would have been applied by the funder. And, unfortunately, the COVID-19 issue had just closed down property inspections making things a little more tricky when it came to showing off the property in all its beachside glory to prospective buyers.
Using his principal place of residence (held in a trust) and the equity in the remaining apartment as security, we were able to secure a short-term funding facility to pay out the initial development funding financier and provide capital for the borrower to get started on his next project. With an LVR at 55% and a clear exit strategy in place, this was an easy “yes” from the funder.
We were able to turn this funding proposal around quickly, providing the borrower with an indicative letter of offer within 24 hours and a formal approval within three days (a small delay was incurred due to the shutdowns). Settlement was attended to within the borrower’s timeframes and we look forward to working with he and his development team again for their next project.
Short-term residual stock facilities are terrific for occasions like these; where there is a solid marketing plan in place, most units sold or unconditional, and supporting security (if needed).
Taking out a short-term loan frees up the borrower from existing loan requirements and provides freedom to continue working while waiting for the remaining unit sales to be finalised.
Residual stock loans are generally for professional property developers with extensive experience and a strong pipeline of developments ahead of them. The beauty of the residual stock loan is that it provides the developer with some breathing space – they don’t have to accept the first offer on their property; they have the ability to hold out for a market increase, or a better offer.
Our short-term facilities cover a range of uses. From paying out an ATO debt, to buying out a business partner, to taking advantage of one-off stock buys there is a short-term loan facility to meet your needs.
Short-term facilities start with a term as low as 7 days and a general maximum term of 12 months. We can absolutely look at longer terms if that’s what your project requires.
For more ideas on how a short-term loan can support your business, check out this post from earlier in the year.
To get in touch with us about a short-term or residual stock loan, send us a message here.