Banks now more lenient for SME loans, but still not as flexible as private lenders

Private lenders are more flexible for SME loansA recent article from Australian Broker stated that Australia’s major banks have introduced more lenient lending criteria to make it easier for small and medium-sized enterprise (SME) owners to purchase property.

Westpac announced it would increase its loan to value ratio (LVR) from 80% to 90% following similar changes from Commonwealth Bank earlier in the year. Westpac, CBA and St. George also all announced they would only require one year of financial records as income verification for self-employed borrowers. Previously they had required two years of financial records and tax returns.

SME loans need flexibility

While it’s great that SMEs now have more opportunities to access bank funding, they are still required to show serviceability which isn’t always possible. Similarly, for businesses that need quick turnarounds and short-term funding, a bank still isn’t going to be the right source for funds.

The difference between a bank and a private lender is that a bank focusses on serviceability while a private lender focusses solely on asset value and exit strategy. At Private Mortgages Australia all our loans come with a component or prepaid interest so we don’t need to worry about serviceability. This distinction is the main reason PMA is able to service so many SME loans for short-term finance.

If you have an SME client who can’t get funding from the banks, give PMA a call.

By Tony Barbone

Managing Director, Private Mortgages Australia

Refinancing ATO Debt

Private Mortgages Australia can help refinance ATO debtThe end of the financial year can be a stressful time for lots of people as they try to manage their expenses and get their finances in order before the tax man pays a visit. If a borrower has an outstanding ATO bill and the ATO doesn’t grant an extension then they can be in a bit of strife. While having an ATO debt is not ideal, this doesn’t disqualify them from borrowing money. A traditional bank won’t lend to a borrower with an outstanding ATO debt, however, there are several steps that can be taken to consolidate tax debt in order to get the finance needed.

One way of doing this is to 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.

One of the major benefits of this option is that the loan comes with pre-paid payments so the business borrower doesn’t need to make payments during the term of the loan and can reinvest profits back into the business to ramp things up or focus additional cash-flow on building that good payment history with their current lender.

Having an ATO debt can be a tricky situation however, with some strategic management of the debt it is possible to get back on track and make it possible to access finance.

 

By Tony Barbone

Managing Director, Private Mortgages Australia

Borrower Beware

Learn the tricks to avoid the dodgy lenders.A private mortgage is a great option if a borrower is having issues borrowing from a bank or if they are looking to have their mortgage application approved quickly. A private lender provides the loan with less red tape and processes the application in a timely manner, so you can access the funding you need sooner. Unfortunately though, there are some bad lending practices out there which can bring a borrower unstuck.  However, as with all industries, it’s a case of just a few bad operators making a bad name for the industry. If you know what to look out for and the right questions to ask your lender then a private mortgage can be a great option and deliver the best results for the borrower.

Here are five things to keep an eye out for when looking at a private mortgage:

1. Upfront Fees

The practice of lenders charging huge upfront fees is one of the biggest problems with the private mortgage industry. Some lenders can charge tens of thousands of dollars in upfront fees without the borrower even knowing whether or not they will be accepted for a loan. To ensure a borrower isn’t out of pocket and without a loan make sure you look carefully at the upfront fees charged by a lender and go for a company that charges minimal fees upfront. $550 – $1,100 is typical depending upon the size and complexity of the loan. You want a lender who makes their money by actually lending money not just charging upfront fees and rejecting the loan.

2. 24-Hour Loans

One of the major benefits of a private mortgage is the speed.  A private mortgage can be settled within a fraction of the time in which a traditional lender would require. This is because a private lender tends to focus on the security – the property to be used as collateral for the loan – rather than on ‘red tape’ processes and the applicant’s credit history, which a traditional lender might be more focused on.

A quick turnaround on a loan application is something that most private lenders will be able to offer, however, many lenders are now taking this one step further by saying they can have the loan settled within 24 hours. While in some cases this may be possible, there is still a phenomenal amount of work that needs to go into any lending decision and it would be very unlikely that every loan could be settled within this time frame. If you a working with a lender that claims 24-hour turnarounds then it may be wise to ask them exactly how many loans they have completed within a day. You may find it’s not something that happens very often. The lender knows that once the borrower is committed to them it will take too long to start again with another lender so they stay with them even if they take another week to do the loan.

3. Expensive ‘Forced Sale’ Valuation

Many lenders don’t offer loans based on market value but rather will do a ‘forced sale’ valuation which typically comes in well under market value. This means that when the Loan to Value Ratio doesn’t stack up they will come back to the borrower and make them pay the upfront fees and charges. Make sure you check with the lender what type of valuations they do.

4. Cancellation Fees

Lenders can also include a clause in their offer that if a borrower doesn’t proceed with the loan then they can be charged a cancellation fee. Usually this can be around two percent of the loan value. In some scenarios the lender can put a caveat over the property and hold the borrower to ransom until the fees are paid. To ensure this doesn’t happen, make sure you read all the fine print and ask about cancellation fees up front.

5. ‘From Rates’

A sneaky trap that some lenders use is advertising rates ‘from’ 1% per month, or a similarly low rate, in order to attract a borrower, however when it come to the actual loan offer the rate is much higher than this. The way they trap the borrower is by including the ‘from rate’ in the indicative letter of offer which the borrower signs without knowing the actual rate. Then, when the borrower gets the shock of the actual rate and wants to withdraw from the loan the lender can apply the cancellation fee and caveat the property. Obviously, this can cause a lot of disappointment and frustration so make sure to ask the lender up front for an estimate of the rate which will be applied to the loan. A good lender should be able to give you a pretty accurate interest rate based on the upfront information you provide.

 

While most private lenders have a transparent lending process and are genuinely trying to find the best loan option for the borrower, there are other lenders out there that can make the process a lot trickier.  Hopefully these five pointers have given you an idea of what to look out for and will help you to navigate your way through to a successful private mortgage deal.

 

By Tim Hart

Director, Private Mortgages Australia