Private
Lending
The vast majority of the time, it needs to be for business purposes as almost all loans a private lender can offer you will not classified as “unregulated” National Consumer Credit Protection Act. Business purpose can mean a range of activities including purchasing a commercial property, purchasing or starting a business, payout out a business debt, working capital for a business, any form of property development activities including construction financing and etc. However, the funds cannot be used to invest in a residential investment property or an owner occupied residential property.
Typical Questions?
WILL I NEED TO SIGN ANY DECLARATIONS?
Most private lenders will require you to sign a declaration stating that the purpose of the fund is for business purposes.
IS PRIVATE LENDING SECURED OR UNSECURED?
Private lending is mostly secured with some exceptions. Most private lenders are “asset lenders” which means that they are comfortable to lend against the value of a traditional asset such as property. Some private lenders will also lend against equipment, future income streams, and business goodwill but they are much less common and are usually quite specialised in their nature.
WHAT TYPE OF ASSETS WILL PRIVATE LENDERS LEND AGAINST FOR A “SECURED LOAN”?
Residential, commercial, land, rural/agricultural assets are usually all acceptable forms of security. Some private lenders may not accept some security for some reason or other, and it can vary significantly from lender to lender depending on their risk profile so it’s generally best to speak to your broker who will know which private lender matches your situation.
WHAT LEVEL LVR WILL PRIVATE LENDERS GO UP TO?
LVRs vary from asset to asset as well as lender to lender. Generally speaking, most private lenders will cap out at 65% LVR, meaning the absolutely maximum they would lend you is up to 70% of the value of an asset. For example, if your commercial property was worth $1M, some private lenders may lend you up to 70% of that, for a total of $700,000.
WHAT IS A TYPICAL LOAN TERM FOR A PRIVATE LENDER LOAN?
Loan terms start from as short as 3 months to get you through a short cashflow issue or to bridge a gap in your funding requirement (timing mismatch). It can go up to 5-7 years depending on the lender, but generally a typical private lending loan term is between 6 months to 2 years. WHAT IS THE RATE THAT PRIVATE LENDERS NORMALLY CHARGE FOR A LOAN? Private lending rates are generally higher than any major bank or even tier 2/specialist lenders.
WHAT IS THE RATE THAT PRIVATE LENDERS NORMALLY CHARGE FOR A LOAN?
Loan terms start from as short as 3 months to get you through a short cashflow issue or to bridge a gap in your funding requirement (timing mismatch).
WHAT IS A TYPICAL LOAN TERM FOR A PRIVATE LENDER LOAN?
Private lending rates are generally higher than any major bank or even tier 2/specialist lenders. Starting at around 7-8% for a very strong deal (borrower with strong Asset & Liability positions; low LVR on the asset being borrowed against; simple purpose such as purchase a property or refinancing); and they can go up to 12-15% for a 1st ranking mortgage if the borrower/asset is perceived to be higher risk.
WILL PRIVATE LENDERS TAKE A 2ND MORTGAGE OR CAVEAT AS SECURITY?
Some private lenders will take a 2nd mortgage as security or a caveat across the property as security, however these normally attract a much higher rate and often require the consent of the 1st mortgage holder’s and sometimes a Deed of Priority to be entered into with the 1st mortgage holder. If you require a 2nd mortgage or a caveat loan, it is best to speak to our experienced team on your requirement as it can be a tricky process to execute.
WHAT FEES ARE INVOLVED TO USE A PRIVATE LENDER?
Private lenders charge essentially the same type of fees as a normal lender. This normally includes an application fee to get the process started; valuation fee for the asset that they are lending against once the loan is approved subject to valuation; legal fee for the lawyers to prepare loan documents once the valuation satisfies the lender’s requirements; and an establishment fee once the loan is drawn.
HOW LONG DOES IT TAKE TO SECURE A PRIVATE LENDER LOAN?
Generally speaking, a private lender loan takes less time than a fully documented bank loan since the lending requirement is usually not as stringent.
It can take somewhere between 2-6 weeks to finalise a private lender loan. However this can vary significantly depending on which private lender you use; the complexity & size of the transaction (e.g. development construction loan for property development transactions will take significantly longer); as well as how long it takes for the valuer to complete their valuation.
SOMEONE TOLD ME THAT PRIVATE LENDERS ARE UNREGULATED AND THEREFORE MORE AKIN TO LOAN SHARKS, IS THIS TRUE?
This is not true.
While there are definitely unscrupulous private lenders out there, the vast majority of private lenders have fixed mandates from their investors on what they can and can not do. A lot of private lenders are run by fund managers who have clear set processes; credit assessment teams; management boards and other checks and balances to ensure that they act in a way that is sustainable to build a long term business through the business cycle.
CAN PRIVATE LENDING SOLUTIONS BE EXPENSIVE?
Absolutely, but generally speaking, the expensive private lenders usually take on more risks by offering higher LVRs; more specialised assets; 2nd mortgage/caveat; or simply very fast turn around with significantly less credit hurdles.
We work with a range of very reputable private lenders who specialise in different areas so please get in touch if you think you may need a private lending solution.
WHAT TYPES OF PEOPLE NORMALLY GET A PRIVATE LENDING LOAN?
Most people who get private lendings loans are in business and have a funding gap/shortfall for a short period of time.
This may include property developers; businesses acquiring new businesses/sites; or newly formed businesses with no financials.
How can I apply for a Private Loan?
Before you can apply for a construction loan, the plans for your
- Submit application form
- We conduct initial assessment
- We issue an Indicative Letter of Offer
- Conduct due diligence
- Issue Letter of Offer
- Settlement
The Borrower or Referrer fills in the Quick App Form (found here) which includes details about the business, the individual borrower/s, loan amount, loan purpose and real estate assets and liabilities.
We look at the details provided and see if it is possible for us to offer a loan in the provided circumstances.
We provide the Borrower with and Indicative Letter of Offer which gives the details of how much we are willing to lend, the terms of the loan and the interest rate. If the Borrower decides that the Indicative Letter of Offer is suitable to them then they may have to pay a assessment fee depending on complexity to cover costs for searches that we need to ensure that everything is in order for us to move ahead with the loan.
Due diligence involves assessment of the applicant, loan structure, security position and exit strategy. There are a number of documents we need the Borrower to send us to complete these tasks which are included on this checklist here.
Once we have conducted all the necessary checks and searches we will then issue a formal Letter of Offer. This includes the final interest rate, expected disbursements at settlement and details of any outstanding conditions to be met prior to settlement (if any).
Once the Borrower has accepted the Letter of Offer loan documents are prepared and sent to applicant’s solicitor by email. Upon return of the fully executed documents the approval fee, legal costs and prepaid interest are deducted from the loan and the balance can be paid by the next business day, sometimes sooner.