Funding For Instant Asset Write-Off Purchases

Changes to Instant Asset Write-Off threshold announced by Morrison governmentIn March, the federal government announced a fivefold increase to the Instant Asset Write-Off (IAWO) threshold to $150,000 and extended to businesses with annual turnover of up to $500 million, from $50 million. Businesses have until June 30 to take advantage of the higher threshold. New equipment, computer hardware, office fit-outs and furniture, and vehicles are among the assets potentially eligible for the write-off.

The instant asset write-off was first introduced in 2015 and has been extended every year. According to the Sydney Morning Herald, ‘in 2017-18, more than 360,000 businesses claimed deductions worth over $4 billion under the scheme.’

This much needed cash injection will help to keep businesses afloat however, the increased and expanded measure will only run until 30 June 2020, before reverting to its legislated $1,000 threshold and reduced eligibility to small businesses with a turnover of less than $10 million. While the write-off had been extended on a yearly basis in previous budgets, the postponement of this year’s budget to October has raised uncertainty over the future of the incentive, although Prime Minister Scott Morrison has declared that tax measures to encourage investment will be part of his JobMaker plan.

The short turnaround for accessing the higher threshold will have many businesses scrambling to get the cash together to make eligible purchases before the June 30 deadline. However, banks have been placing rigorous lending policies in place which make it difficult for businesses to access funding. In addition, banks have been inundated by finance applications which means the chance of receiving the funding to make purchases before the end of the month is becoming very unlikely.

Private lenders may be the saviour for small businesses in this period. Last month we published the article ‘The Role of Private Lenders During the Coronavirus Crisis’ in which we talked about how lenders like Private Mortgages Australia can assist businesses with short-term loans to tide them over until they can get back on their feet. This also applies for funding of instant asset write-off purchases.

If a business needs funding to purchase equipment, vehicles or any other business related asset then a private lender may be able to provide the finance within a matter of days rather than having to wait weeks to see if the banks will approve an application. Because private loans are secured by property, private lenders don’t need to assess the businesses serviceability. Therefore, if the businesses cash flow has been impacted by Coronavirus this won’t play a part in the way the businesses application is assessed. If the borrower has a genuine business purpose, sufficient equity in a property and a realistic exit strategy then they are likely to be approved for a loan. Another benefit of a short-term loan is that the interest payable on the loan is also tax deductible.

 

For businesses looking to take advantage of the increased threshold for the Instant Asset Write-Off scheme a short-term loan may be a great option, however we encourage all businesses to obtain their own taxation advice as individual circumstances have not been take into account in this article and should not be considered advice.

 

For further information about how we can assist you or your clients then please get in touch with General Manager – Relationships, Shanta Lobo on [email protected] or 1300 856 683.

Why interest rates are irrelevant

private lender interest ratesSecuring a business loan can be confusing and finding a transparent lender can be a difficult task. When choosing a lender there is a lot of jargon to sort through which is why it is easy for borrowers to focus only on getting the lowest interest rates. However, it’s far too common for borrowers to buy into a loan because the interest rate looks good only to discover a range of hidden costs and fees.

Interest rate vs total cost of the loan

The rate of interest is only one portion of the total cost of a loan. Trying to calculate the true cost over the life of a loan can be daunting but it makes good business sense to do so. This is why finding a lender that is entirely upfront and transparent about fees is incredibly important. One way to check is to see if they provide a proposed disbursement schedule or estimate of all upfront costs with any indicative offer.

Possible fees

Here is a list of fees a lender may require as part of the loan agreement, which can greatly increase the overall cost of the loan:

  • Establishment/Origination/Application Fees: Setting up the loan/account .
  • Documentation Fees: A fee to cover time spent preparing the loan documents.
  • Direct Debit Fees: When making a repayment some lenders charge for every transaction which add up over time.
  • Monthly Management Fees: Ongoing fees charged for the management of the loan.
  • Withdrawal Fees: Charged for every withdrawal, often seen in Line of Credit loans.
  • Late Fee: If the payment schedule is missed.
  • Early Repayment Fee: Charged if you pay the loan out before the due date.
  • Amendment Fees: Added by the lender if you request amendments to your loan/ repayments.

Educating borrowers

Helping borrowers to understand the difference between a good interest rate and the total cost of a loan is extremely important, particularly when dealing with short term lending. We have had clients come to us in the past who have been offered an interest half of what we offered, however when they took into account the other fees and charges they were required to pay they discovered that we were significantly cheaper than the other lender. When you look at the total cost of the loan, interest rates can become completely irrelevant.

Below is an example of a $435,000 two-month loan for a second mortgage we arranged for a client to help them complete a development project:

Interest for the two-month loan:                                         $16,530 (22.8% per annum)

Approval fee:                                                                               $15,206 ($2,871 to Referrer)

Legal fees:                                                                                     $2,735

Total cost of the loan:                                                               $34,471

This shows that, as the loan was only for two months, the interest was just less than 50% of the total cost, demonstrating how critical it is to know what all the other costs are.

The total benefit

When looking at whether to take this loan, the borrower also needed to consider how much money they would make out of the transaction.  They not only needed to look at the cost of the loan, but at the benefit that the loan was going to deliver.

This is where a rough feasibility study for the development was important.

Gross Realisation Value:                                                        $1,950,000

Land purchase:                                                                          $650,000

Stamp duty:                                                                                 $35,000

Build cost:                                                                                    $650,000

Other costs (agent, council, holding):                               $115,000

Total costs:                                                                                   $1,450,000

TOTAL GROSS PROFIT:                                                          $500,000

This means the project yields a gross profit of $500,000.

Therefore, the cost of the loan divided by the gross profit is approximately 7% of the total cost. The client was able to determine that it made business sense to give away 7% of their profit ($34,471) to get the deal done. As we can see from this example, the interest rate is less significant than the overall cost of the project.

Sound advice

When considering a loan, a borrower needs to gain perspective on the overall outcome of the loan rather than getting caught up just comparing interest rates. This is where sound advice from a broker and a transparent lender is critical.

For further information about private loans for business projects, give us a call on 1800 856 683 or contact us via our website: www.privatemortgagesaustralia.com.au/contact-us/

SMEs with tax debt need to take action

ATO tax debt refinancingOn 22 October 2019, the Government passed law which allows the Australian Taxation Office (ATO) to disclose tax debt information of businesses to registered credit reporting bureaus (CRBs). The law received royal assent on 28 October 2019.

Under the law, the ATO can only disclose tax debt information of a business where certain criteria are met.

The ATO will only disclose tax debt information of a business to a CRB if the business meets all of the following criteria:

  • it has an Australian business number (ABN), and is not an excluded entity
  • it has one or more tax debts, of which at least $100,000 is overdue by more than 90 days
  • it is not effectively engaging with the ATO to manage its tax debt, and
  • the Inspector-General of Taxation is not considering an ongoing complaint about the proposed reporting of the entity’s tax debt information.

The ATO will notify a business in writing if they meet the reporting criteria and give them 28 days to engage with the ATO and take action to avoid having its tax debt information reported.

Many businesses have previously used the ATO like a bank and racked up debts by not paying their commitments on time. This decision could now have adverse effects on credit ratings and credit insurance limits, making it harder to maintain or extend credit terms with suppliers.

There has never been a better time to get your ATO debt in order and set your business up for success in 2020. Private Mortgages Australia is able to help businesses refinance ATO debt and pay out the tax debt with a short-term mortgage. This enables the borrower to pay off the ATO debt and build up a few months of good payment history. The borrower can then try to refinance to a long-term debt and pay off the loan.

For more information about how Private Mortgages Australia can help, read our case study or get in touch via our Contact page.

 

 

5 Ways a Mortgage Broker Can Help You Navigate a Business Loan

Commercial Mortgage BrokerObtaining funding for your small-to-medium business can help you survive tough times or take your enterprise to the next level. Juggling all the steps you have to take to obtain a loan can be stressful and  take up valuable time and resources!

Taking time out from your business to do an analysis of your business needs and research your lending options is only part of the process. Once you find a lender you can work with, you need to negotiate a deal with them that works for you over time and understand all the terms and conditions required over the term of the loan.

Working with a Mortgage Broker

Like most of the tasks in your business, if you can’t do them yourself, find someone who’s an expert at them. Brokers create a bridge between you and the lending world. Their role has them matching business owners with business lenders year-round. They know the best lender to engage for your purposes, so you achieve your important goals. Here’s how they help:

1. They source suitable loan options

This requires a sound knowledge of the finance market and the benefits provided by different lenders. Being able to access a range of lenders, means they are more likely to find one that matches your specific needs. A Mortgage Broker knows who to suggest and why.

2. They find workable solutions

Lenders have criteria for preferred investments. By understanding your specific need for a loan, a Broker uses their knowledge to source the most suitable Lender. You don’t have to decipher which Lender would be more interested and inclined to provide the funding you need, that’s the role of the Broker. You get on with running your business, they get on with finding the right loan for you.

3. They navigate the fine print

A Mortgage Broker conducts Due Diligence on your behalf, so you achieve your desired outcomes safely and easily. There is a specific process to sourcing, securing and completing a loan. A Broker knows how to navigate all the risks associated with private lending. With a greater understanding of the terms and conditions, a Broker can guide you through the whole process and keep you informed.

4. They have the experience

Brokers have a network of Lenders with whom they have developed professional connections. Building rapport with a platform of Lenders is crucial to a Broker’s ability to assist a wide range of clients. A good Broker has extensive experience in private lending and has negotiated loans for many other small to medium businesses. They understand how to avoid any pitfalls and negotiate the best outcome for you.

5. They know their stuff

A Broker can translate all the financial jargon and acronyms prevalent in finance documentation into simple terms for you. You can rest easy knowing they can decipher any complicated terms and conditions that may apply, so you’re not left wondering what’s going on. Plus, they don’t mind you asking questions. They understand that you need to feel confident in agreeing to the terms and conditions of your loan.

Time you won’t get back!

The most important aspect of using the services of an experienced Mortgage Broker means you save time – the one resource you never get back. You can focus on building your business while your Broker takes care of all the rest. By taking on the responsibility of negotiating all the steps required to secure your business loan, a Broker saves you time, energy, money and a lot of stress!

As a private lender, we appreciate the work that Mortgage Brokers do to help our Borrowers. In fact, over 90% of the loans we provide are introduced to us by Brokers. If you have any questions about how a Broker can make your business borrowing plain sailing, please send us a message via our Contact Page.

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