21 Oct Why You Should Align Yourself with a Private Funder
Whether you know it as Private Funding, Peer to Peer Lending, Private Money, Solicitors Loans or simply as the oldest form of lending, Private Funding has found its place in today’s business world.
With tighter regulations for traditional bank lending and more hoops to jump through Private Funding is the beacon in the dark for many SME’s and individuals. This years’ Financial Services Royal Commission has made borrowing tricky for some, Private Funding re-opens the market and keeps things ticking along.
The reality of Private Funding is that it’s actually not too different from traditional funding. That’s what makes it ideal for a range of borrowers.
Traditional Funding relies on investors depositing their funds to the bank for a return. The bank pools the funds then lends it to borrowers, for a return.
Private Funders have access to their own pool of funds that they lend out for a return.
Traditional funding considers your security, your ability to repay your debt, your lending history and the purpose of the facility. Private Funding does that too.
The process is, at its core, the same:
- You bring your requirements to the funder/broker
- Your proposal is assessed
- Due diligence is completed
- Your loan is approved
- Mortgage documents are signed
- Your loan is settled
Private Funding is quick.
We often hear of borrowers who have had an application with a bank for 30 or more days. Each time they call to follow up on the status of their application it’s “Oh, it’s with credit” or “We are just checking its within policy”. It’s the lending equivalent of “The cheque’s in the mail”. With Private Funding a loan application can be turned around in a week. Private Funders can move quickly on your opportunity. We utilise our own Solicitor’s who are well-practised in Private Funding to get your loan settled – fast.
Private Funders are not constrained.
There are no capital requirements, private funders don’t answer to an investment board or have the necessity to allocate specific portions of their funds to specific industries or postcodes. If a Private Funder wants to change their lending parameters, they are free to do so at their leisure.
Private Funding gives you options.
Traditional mainstream funders are reluctant to take on second mortgages. Private Funding acknowledges that sometimes a second mortgage is the only option. The risk reflects the reward.
There are fewer restrictions.
Private funders operate within their own parameters.
When a Private Funder comes on board, we ask them:
- Why do they want to lend?
- What do they want to lend against (residential/commercial/industrial/asset/etc.)?
- Where do they want to lend (geographically)?
- Who do they want to lend to (Bad Credit, PAYG/Self-employed/etc.)?
- What LVR’s are they comfortable with?
- Are they happy to look at second mortgages?
- What is their minimum and maximum loan amount?
- Are they comfortable with risk?
- Are they comfortable with an exit strategy as the primary option for repayment?
- What term will they lend for?
- What rate of return are they after?
Here at IBN Direct, we don’t have manuals of endless policy. We take a common-sense approach to lending:
- Who are we lending to?
- What are we lending for?
- How are we going to be repaid?
- Is this a reasonable risk?
This way, when you bring us your request, we already have a solid idea of who will have an appetite for your scenario. We also know how long it is likely to take to fund your request. This makes the turnaround time extremely quick, and the process extremely painless for you.
Private Funding is exit strategy based
Your Private Funder is not overly concerned about your ability to make monthly repayments on your loan. They won’t need your last three tax returns, 18 months’ worth of bank statements, or require you to hand over your first born child…..
Private Funders are primarily interested in the asset held as security.
Not to sugar coat it, they want to know what will be sold to recoup the funds should the loan go into default or if you fail to repay the loan.
The advantage of this is that you don’t have to make monthly repayments on the facility. Interest is generally capitalised and paid upfront for the term of the loan.
Going into the loan you will know how you intend to repay the debt. It could be through:
- Refinance through traditional lending (particularly if you needed to move quickly on an opportunity and your bank couldn’t meet the time frame required)
- Finalisation of a deceased estate
- Sale of the asset
Rates that reflect risk
Private funding uses a variety of key metrics to determine the interest rate that will apply to a facility.
- The LVR (A higher LVR equals a greater risk)
- The amount of the loan
- The type and vale of the offered security
The rate that applies to your facility is reflective of the level of risk the funder is taking to loan you the funds.
Jump on that opportunity
Private Funding allows you to move quickly on an opportunity. For example:
- Your supplier can offer you a more attractive price for bulk purchase. Private Funding can help you move quickly on the deal.
- You drive past the perfect warehouse that gives your business the physical room it needs to grow. But the auction is in 5 days. All good! Private Funding can give you the quick approval that you need now to finalise the purchase and you can refinance it through your traditional lender after settlement.
- You can’t afford to move to a larger home to accommodate your growing family and you have a tax debt that means the bank won’t lend to you for reno’s. Private funding can help you pay off the tax debt and renovate for extra space. Increasing the value of your home and making you more attractive for traditional finance in the future – win!
- You have found your dream home but still need to sell your existing one. Private Funding can operate as Bridging Finance. Check out this post for more information on how Bridging Finance can work for you.
Other scenario’s you can fund through Private Funding:
- Business restructuring
- Business Expansion
- Land acquisition
- Clearing tax debts
- Property development
- Freeing up equity in property
- Seasonal cash-flow business funding
Who needs a bank?
Unfortunately, in this day and age, we all do. But not for everything.
Many SME businesses have long and ongoing relationships with their Private Funder. Their Private Funder becomes intimate with the business and an active member of the cash flow cycle – particularly with seasonal requirements. This makes future lending a quick, easy and painless task.
We know Private Funding
Working with a company like IBN Direct gives you options. We are the specialists in the Private Funding market and have the experience and the expertise to know quickly whether Private Funding is an option that will work for you.
Using IBN Direct frees up your time, we work with the funder to get your deal settled. Contact us to find out how you can fund your next project without a bank.
Private Funding has a very real place in the market for the following reasons:
- Speed – Your private funder can make their own decision about whether they want to fund your loan. They don’t answer to boards, don’t require you to jump through hoops and take a common-sense, exit strategy approach to your loan requirements.
- Flexibility – Private funding can be used for all sorts of purposes. Each deal is evaluated individually and on its own merits. If you are in a position where you anticipate regular peaks and troughs within your business, forming a long-term relationship with your private funder might be a good option. You may be able to negotiate more flexible terms if your funder has an intimate knowledge of your business.
- Approval – Private funding exists to provide finance to borrowers that mainstream lending won’t touch. Your opportunity for approval is right there.
- Convenience – Private funders move quickly, have extensive property knowledge and can make an informed decision quickly. They exist to allow you to act on your business needs as they come up and provide speed, flexibility and approval to get your deal done.
To get started on your loan application, click here. We look forward to helping you meet your goals.
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.