17 Aug Private Lending – perspective from the other side of the ledger.
Now, let’s be frank. We aren’t accountants or financial planners. The below is intended only to give you something to think about, it’s not advice and shouldn’t be construed as such. It is a factual account of how we do business and what our lenders can expect when they do business with us.
Please speak with your Professional Advisers to find out what will work for you and your business needs before considering private lending as an income stream.
What is private lending?
Private lending is direct lending to a borrower, external to a traditional funding mechanism – like a bank.
You may have heard of ‘Peer to Peer Lending’, ‘Private Mortgages’, ‘Solicitor Funding’ or ‘Solicitor’s Loans’, these are all the same thing, and are all forms of private finance.
Private lending exists to meet the specific need of the borrower and operates within the marketplace where traditional funding is not able to meet the borrower’s needs.
Why do people need private lenders?
Generally, people use private funding for short-term purposes where a quick turn-around time is required and operating to a banks timeline or lending criteria isn’t something that’s possible in the moment.
Private lending works to a solution-based model and provides access to funding for borrowers who have a solid proposal and real estate security to support the transaction.
What do people fund through private lenders?
Some examples of funding purposes are:
- For urgent property settlements
- For bridging loans between the sale of one property and the purchase of another
- Expansion of business when extra space, equipment, or staff are needed
- To even out any cash flow fluctuations due to operating in a seasonal industry that experiences bumper months mixed with quieter months
- When an opportunistic property or stock purchase comes knocking and quick action is required
- To pay out an outgoing business partner
- Where a traditional funding approval has been reneged upon/withdrawn – we are seeing this a lot with the current state of Australia
- Working capital requirements
What can you expect as a lender?
As a lender, you can expect to receive your interest in advance and terms that suit your lending parameters. Our experienced team source lending proposals to suit your requirements and structure scenarios to ensure they are sound. We fully vet the transaction, complete any searches required and provide a detailed proposal package to you for your assessment.
We work closely with a small and very select group of lenders to ensure that available funds are rarely sitting idle and only lend to company borrowers for 1st or 2nd mortgages, fully secured against real property.
Referrals come to us from our network of over 16,000 brokers, accountants, and solicitors, meaning we only present to you qualified scenarios with supporting information.
Rates of return?
At present our funders enjoy returns of between 7% and 12% for first mortgages and 15% and 24% for 2nd mortgages. Of course, as a lender, you set the rate you would like to achieve, and the tenor that suits your planning requirements. If you are open to negotiating for the right opportunity, that is your call to make.
What is expected of you as a lender?
Operating as a private lender requires a strong commercial acumen, and the ability to separate fact from emotion – understanding that you are making a business decision.
Majority of the private lenders on our panel are experienced within the property market/industry. They understand the industry and their lending demographics at a granular level and are comfortable in completing their own research around whether a private lending opportunity meets their own needs.
A sound private lender is able to make a decision quickly and with conviction, and who is comfortable undertaking well-researched risk.
We expect that the private lenders on our panel will deal fairly with borrowers at all times and will utilize our experience and processes if an issue arises.
What do we offer?
We provide fully vetted lending opportunities for small to medium businesses along the East Coast of Australia. Given the current pandemic, traditional funding sources are retreating, leaving prime transactions searching for funding.
We operate sensibly, working with the facts of the transaction. We want to know:
- Who are we lending to (what is their background, what experience do they have, how do they operate etc.)?
- What are we lending for (why do they need funding, what is the expected outcome, where is their proposal, how is it secured and supported etc.)?
- How is the lender going to be repaid (what is the exit strategy, where will the repayment be coming from)?
- Is this a reasonable risk (what is the security position, is there an acceptable LVR, does the exit strategy support the transaction, is the security sound etc.)?
We offer lending transactions that are exit strategy based, supported by real property security to company borrowers. The transactions are assessed on their own merits.
What is the process for lending?
- The borrower completes an application form
- We complete an initial assessment of the transaction and engage in preliminary discussions with funders we feel the transaction will best suit
- We issue an Indicative Letter of Offer for signing by the borrower
- We complete rigorous Due Diligence and present the package to the funder for their assessment
- A formal approval/Letter of Offer is issued to the borrower
- Documents are signed
- Settlement occurs
What about defaults or mortgagee in possession?
There is no such thing as a risk-free investment. As part of our deal structuring process, we assess the risk and mitigate it, within the loan proposal. We work closely with the borrower, lender and solicitors to ensure that only proposals that present opportunities that best meet our lenders risk profiles are introduced.
Some lenders are more comfortable than other with risk, and that’s quite ok.
Many of our lenders have been referred to us because of our rigorous vetting of deals. It is one of the things we are known for in the market and has helped to ensure we have a sustainable business nearly two decades on.
Unfortunately, there are no guarantees as to how a borrower will operate or behave once their loan has been set, but we have found that 999 out of 1000 do the right thing and operate with integrity.
We work closely with Australia’s leading experts in mortgage law, to ensure rigorous lending practices, designed to safeguard both borrowers and lenders.
Risk is an inherent factor within any lending scenario. We urge you to speak with your professional financial advisors to understand whether private lending is a channel that meets your risk profile, and your financial goals.
How do I get started?
Getting started is simple, email [email protected] and we’ll be in touch. We look forward to working with you to help keep Australian businesses moving forward.
Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.