Sick of settlement letdowns?

Avoid settlement letdownsA common criticism of private lenders is the regular occurrence of settlement default, where the lender is unable to come up with funds promised. This can happen when the lender doesn’t have a steady flow of cash coming in and is unable to raise the funds necessary to finance the mortgage for the agreed amount.

Usually a private lender will need to raise funds from investors in order to fund the loan. If the lender does not have a steady flow of investor funds coming in or a pool of funding readily available there could be issues when it comes to time to settle. Unfortunately this happens far too often and can leave the borrower high and dry and the project they are borrowing funds for can fall over. Not to mention the time and money wasted on the loan application process.

How to avoid settlement default

If you want to avoid the letdown of settlement default then here’s a few things you can do:

  • Don’t fall for quick settlement claims. Many private lenders will state that they have super fast settlement times, sometimes as little as 24 hours. Usually this is completely unrealistic and used as a marketing ploy. If it sounds to be good to be true…well, you know the rest.
  • Ask about the lenders settlement record. Find out how often loans they have worked on make it to settlement stage. Take a look at case studies and check out testimonials received from respectable brokers or borrowers.
  • Ask where the funding come from. This is a very interesting concept that very few people consider, where does a private lender actually get their money from? Its a good idea to ask who the Lender of Record is? Some lenders will change this on the ultimate loan documentation when a private lender is brokering the transaction to the person writing the cheque. Private Mortgages Australia uses the one vehicle for all its loans. A lot of private lenders use a sophisticated investor networks to underwrite their loan advances. Other private lenders raise funds from wholesale or retail sources with the use of an Australian Financial Services License (‘AFSL’). PMA has received backing from an  independent wholesale funder that has committed to investing up to $100 million to fund our portfolio of registered first mortgage loans.
  • Find out who makes the lending decision? In some cases it is the individual investor that makes the final decision to lend the funds required and will essentially “write the cheque”. This isn’t an ideal situation. Imagine that you are a borrower and you submit a loan to a private lender. Everything seems to be going well, you pay the upfront fees, order the loan documents from the solicitor, but then are taken by complete surprise when your loan application is rejected despite being formally approved. What has occurred is that the loan was approved by the ‘middle man’ but then turned down by the person writing the cheque. Unfortunately this occurs all the time. The smarter alternative is to make sure that the private lender is the one who is making the decisions. This is a safer and more effective situation for the borrower. PMA operates a number of Funds and our Credit Committee makes the lending decision on behalf of the pooled mortgage fund.

If you haven’t already, align yourself with a good private mortgage provider that has a proven track record with finalising settlements which can only be a good thing for you and your clients.

 

Private Mortgages Australia Secures $100M Institutional Backing

The Private Mortgages Australia team

The PMA team: Shanta Lobo (Senior Relationship Manager), Tony Barbone (Managing Director), Tim Hart (Director), Julie Ciccone (Business Development Manager) and Peter Cuskelly (General Manager).

Funding enables larger loan amounts and more competitive interest rates

 30 May 2019: An independent wholesale funder has committed to investing up to $100 million with specialist commercial mortgage manager Private Mortgages Australia to fund its portfolio of registered first mortgage loans secured by Australian property.

The investment will enable PMA to grow the number of loans they are able to service and will see the maximum loan amount increase from $2 million to $10 million on registered first mortgages. It has also allowed PMA to offer more competitive interest rates with their base rate now at 9% per annum for applicable loans.

“We expect that the changes to loan amounts and interest rates will attract a wider pool of borrowers and will help grow the business exponentially in the next few years,” said Barbone. “More and more of our referrers are coming to us looking for a more flexible lending solutions after their clients haven’t been able to obtain funding from the banks, so it’s great that we will be able to help even more of them now.”

Private Mortgages Australia, which specialises in short-term loans for small-to-medium businesses, has recently seen a marked increase in the number of borrowers coming to them for finance after being turned down by the banks. This funding will help the national lender to accelerate the growth of its lending business to Australian SMEs and developers.

“Receiving this level of backing is a landmark achievement for Private Mortgages Australia, our borrowers and referrers,” said PMA Managing Director, Tony Barbone. “Our backers clearly believe we are a leader in this space and have confidence in our business model to provide fast and flexible finance to our SME and developer clients. We’re just about to celebrate our fifth year in operation and are excited to have the opportunity to further build the business and deliver even better products and service to our clients.”

PMA’s 2017 In Review

What a year it’s been for Private Mortgages Australia! We’ve had some standout moments in 2017 including:Private Mortgages Australia celebrates some stellar moments in 2017

  • Doubling our new loan volume in the 12 months leading up to our third birthday in July
  • Raising our maximum LVR to 80%
  • Taking a stand to put an end to channel conflict.

We’ve also continued to grow our team with new hires, hosted well-attended webinars and increased our Referrer Remuneration and Referrer Rewards. Here’s a bit more information about the highlights of 2017:

Doubling our Loan Book

In 2017 we saw our new loans grow by 115%, doubling our volume.  We’re so impressed that we’ve been able to maintain this growth (in our second year we increased our loan volume by 151%) – we definitely have our database of 3,000 brokers and referrers to thank for this.

We’ve put this success down the ever-increasing number of small-to-medium businesses needing access to commercial funding who can’t get it from the banks. It’s also been great to see so many brokers diversifying into the commercial space to work with these businesses.

We’re expecting a further 50% increase in the number of settled loans in the current financial year and are already well on track to achieve this.

LVR Increase

In the second half of this year we decided to raise our maximum LVR to 80%. The decision comes after we partnered with Property Predictions Pty Ltd, the creator of patented methodologies which measure demand trends and predict expected changes in prices across the Australian property market.

Most private lenders will generally only lend 65% to 70% LVR, and a lot of the time this is based on a forced-sale valuation rather than the true value of the security property. We always take the true value of the security property without any tricks in order to give our borrowers a better solution. The Traffic Light Reports from Property Predictions employ predictive and patented algorithms developed by leading property market analyst, John Lindeman, to provide highly accurate short term rent and price change predictions for houses and units in any suburb in Australia.

Combatting Channel Conflict

A recent survey conducted by The Adviser found that 78 per cent of brokers had lost a client as a result of channel conflict. It appears to be a growing concern with 88 per cent more worried about channel conflict than they were 12 months ago.

We receive over 90 per cent of our business from broker referrals and we want to keep it that way. That’s why we decided to make changes to our referral fee structure to alleviate any concerns from our broker partners about channel conflict.

We’ve now introduced a ‘subsequent referral fee’ which is paid to the referrer should a borrower come back to PMA directly after taking a previous loan with us via a referrer. We get a lot of repeat clients (which is uncommon in private lending) so we believe we’ve got to be doing something right. We want to reward referrers for providing us with a good lead and will continue to do so no matter how many times that client comes back to us directly. It’s basically free money for our referrers but we believe they deserve it. All referrer fees are paid within 24 hours of settlement with no clawbacks.

Finally, we’d like to take this opportunity to wish all of our supporters a very merry Christmas! It’s an extremely busy time for us and we’ll be working right up until Christmas Day in order to help any borrowers who need finance before the end of the year. If you have any commercial finance needs please get in touch.

MERRY CHRISTMAS!

10 Questions For A Private Lender

Private Mortgages Australia explores what to ask a private lender.The strict lending requirements imposed by traditional bank lenders can mean that many borrowers have trouble qualifying for a conventional mortgage. However, a private lender provides a smart alternative for a business borrower who can’t get finance from a bank.

Private mortgage finance usually comes from private investors or institutional funders who are willing to loan borrowers money for a business purpose using a property as security. The process can be quite complicated but choosing the right lender and knowing the right questions to ask can make a private mortgage a great option. These are some of the questions to ask your private mortgage lender.

1. What types of products do you offer?

A private lender may offer a range of mortgages, such as caveat loans, car finance, invoice factoring, first-ranking mortgages or second-ranking mortgages. If you are looking for a specific type of loan product, check with the lender about the types of products they offer so that you can find the right type of business loan that meets your needs.

2. How quickly can you assess my application?

Private lenders are usually able to process applications much more quickly than traditional bank lenders. Generally, as long as the borrower has sufficient equity in the underlying security, a private lender may be able to approve a loan much more quickly than a traditional lender, sometimes offering pre-loan approval within a few hours.  However, be wary of lenders who advertise 24-hour loans as this is often a trap to get unsuspecting borrowers committed. These 24 hour loans are commonly also called “Caveat Loans”. Many say they ‘can’ offer loans within 24 hours, but with the amount of work that goes into a loan offer it is very unlikely that this will actually happen. Some exceptions do exist, for instance where a valuation has already been conducted by a reputable valuation firm thus reducing the need to order a new valuation and speeding up the application.

3. What interest will I pay on my mortgage?

The interest rate will vary depending on a number of factors including the type of security, location, and the length of time taken to pay it back. After an initial assessment of an application a lender should be able to quote a firm rate based on the information provided. Be wary of Indicative Offers that still quote a rate range or that sound too good to be true, as quite often the interest rate is much higher when the actual loan offer comes back.

4. Where does the money come from?

This is a very interesting concept that very few people consider, where does a private lender actually get their money from? A lot of private lenders use a sophisticated investor networks to underwrite their loan advances. Other private lenders raise funds from wholesale or retail sources with the use of an Australian Financial Services License (‘AFSL’).

5. Who makes the lending decision?

In some cases it is the individual investor that makes the final decision to lend the funds required and will essentially “write the cheque”. This isn’t an ideal situation. Imagine that you are a borrower and you submit a loan to a private lender. Everything seems to be going well, you pay the upfront fees, order the loan documents from the solicitor, but then are taken by complete surprise when your loan application is rejected despite being formally approved. What has occurred is that the loan was approved by the ‘middle man’ but then turned down by the person writing the cheque. Unfortunately this occurs all the time.

The smarter alternative is to make sure that the private lender is the one who is making the decisions. This is a safer and more effective situation for the borrower.

6. Are there any hidden costs?

Sometimes there are additional fees that you may not be aware of upfront. Check with the private lender about any additional costs that may be conditional upon specific conditions or circumstances. Make sure you work with a well-respected lender that has a transparent lending process so you don’t get hit with any unexpected fees.

7. What are the optional features?

If you are looking for specific features, ask the lender about whether these will be offered with the mortgage. Popular features that provide convenience for borrowers include prepaid loan terms. A pre-paid loan term is where a borrower doesn’t need to service the loan payments for a specified period of time. Some lenders only offer this feature for one month. Could you imagine the strain of having to service a private loan with a higher than bank interest rates every month? This would be very difficult especially if the reason for approaching the private lender in the first place was to assist with cash-flow issues. It is very important to work with a private lender that understands this and can offer a loan term that is capitalised with reliance on an exit strategy.

8. How much can I borrow?

Generally, private mortgages can be approved for any amount range from $20,000 to $4,000,000 or more, and up to 75% of the value of the underlying security. However, a good lender will treat every loan application as a unique case and can therefore lend based on the individual circumstances.

9. Do I need security for a loan?

In most cases the lender will require real estate as security. You should have some equity built up in the property to be able to borrow against it.

10. Can I make extra repayments?

If you would like the option to make extra repayments, ask the private lender about the possibility of making extra repayments and whether a fee will be charged if you do choose to make them.

 

By Tony Barbone

Managing Director, Private Mortgages Australia