How to choose the right funding option

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Timing is everything in a fast-paced property market. And you need confidence your funding partner will get the deal done. 

With so many options available – including non-bank lenders as well as private pools of capital – what’s the right option for your project or investment?

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Traditional bank lenders are not renowned for their ability to move swiftly – especially where the deal doesn’t meet their rigid criteria. Scenarios can be complex, with complicated asset structures, multiple parties, challenging pre-sale environments or high leverage. And the relatively few major banks operating in Australia have set their own concentration limits for commercial lending.

There are many reasons non-banks are taking a greater share of the commercial lending landscape. So here are a few things to consider when weighing up which solution is right for you or your clients.

If speed is a priority, make sure your lender can deliver on your schedule. If you can deal directly with the decision-makers, and they’re backed by an in-house valuation or due diligence team, it’s a good sign.

How quickly do you need funds?

Banks will always deliver sharp interest rates, but they often take months to make decisions. That won’t work if you need to settle in a matter of weeks. Non-bank lenders compete based on their agility, and many can advance funds in weeks (and sometimes days).

Urgent scenarios could include:

  • A time-sensitive business opportunity, like a new site purchase
  • Notice to complete on a property settlement
  • Bridging requirements due to property settlement timing mismatch.

If speed is a priority, make sure your lender can deliver on your schedule. If you can deal directly with the decision-makers, and they’re backed by an in-house valuation or due diligence team, it’s a good sign.

How price-sensitive is your project?

Banks have a low cost of funds, as they raise capital from deposits and in the wholesale money market. This makes them a steady finance partner for a long-term loan like a residential mortgage. On the other hand, non-bank lenders, who are flexible and agile, raise their money from alternative more expensive pools of capital, and so price according accordingly.

How long do you need to borrow money for?

Non-bank lenders usually lend for a short- to medium-term, anywhere from 12 months up to 5 years A bridging loan with an non-bank lender can buy you time while you explore longer term solutions – or re-position yourself to meet bank requirements.

Do you meet the lender’s criteria?

Sometimes, the choice between a non-bank lender and a bank is a simple question of eligibility. Banks have a fairly tight assessment model that focuses on understanding the repayment capacity of the borrower (such as steady PAYG employment and tax returns). Self-employed investors and developers don’t always tick these boxes.

Non-bank lenders also have set criteria, but they tend to focus more on the asset valuation and risk profile. That’s because the loans are typically shorter-term. And it also means you’re more likely to get a ‘yes’ if you don’t demonstrate serviceability the way banks expect to see it.

Do you need specialist expertise?

Understanding the nuances of structuring property finance can also make a big difference to your outcome. A specialist lender should be able to add value from the first conversation – from sense-checking valuations to structuring a win-win deal. That’s where a lender with a proven track record and experienced team can give you an advantage.

Non-bank lending is not just for fringe ‘fill-in’ transactions. You might be surprised how what a non-bank lender with a strong balance sheet like Assetline can do for the right opportunity. So if you’re tossing up the right option for your property funding or have a loan scenario, please get in touch.

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