Brokers looking to diversify their income could benefit from a sound knowledge of the commercial market. But commercial deals can be tricky for the inexperienced. Lenders share some of the finance deals they’ve been able to make a reality for brokers and their clients.
La Trobe Financial
The scenario:
Self-employed applicants had been operating their business for 8 years and had recently signed a Contract of Sale to purchase the business premises via their
SMSF with settlement due on 30 June 2015. Purchase price was $500,000 and the applicants were looking to raise 70% LVR via a Commercial
SMSF loan. Following lodgement of the application with a major bank, the applicants encountered two challenges: One of the applicants had 3 “paid” trade-related defaults totalling $48,000 on their credit report, and the
SMSF would only have net assets of $250,000 following the completion of the purchase –$50,000 below the minimum threshold imposed by the bank. Due to the defaults, and the
SMSF’s net asset position falling below the bank’s minimum threshold, the application was declined after 4 weeks in the system.
The solution:
With regard to the first challenge, our Credit Analyst spoke to the introducing broker about the trade-related defaults and found that the defaults were incurred 5 years ago due to a major client failing to pay them for a six month period. All defaults were subsequently paid and each of the creditors still deal with our client. We treated this as one “credit event” (which is acceptable under our Commercial SMSF product). The second challenge relating to the net asset threshold simply isn’t a challenge for us at all as we do not have a minimum net asset threshold on any of our SMSF loan products. We were able to complete the transaction for the applicants at 70% LVR as requested, and completed it within 5 days of receipt to ensure the 30 June 2015 completion date was met. The broker was also pleased with the quick turnaround as the loan settled just in time to qualify him for his aggregator’s commercial conference.
The takeaway:
Having specialist options across multiple asset classes allows brokers to structure better solutions for their clients. Specialist lenders are a great alternative for brokers and their clients when the major banks are unwilling to assist – including commercial transactions. This is the most commonly understood benefit which specialist lenders offer; keeping brokers and their clients achieving their goals. Assisting those that are under-served by the major banks has been at the core of La Trobe Financial’s service proposition since its inception over 60 years ago. Specialist lenders deliver much quicker than major banks and keep the process simple. A significant part of a specialist lender’s value proposition is speed to market. In this case study it took four weeks for the major bank to uncover two problematic components that are fundamental to the credit acceptance criteria for its SMSF loan product, whereas we were able to go from start to finish in five days, delivering a solution in time for both the broker and their client.
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NG Direct
The scenario:
Broker approached
ING Direct with a refinance scenario for a client that had been banking with another institution for over 25 years. This broker had built a strong relationship with the client and wanted to split his banking and transfer some core debt to
ING Direct, leaving some other facilities with the existing institution.#pb#
On completing a needs analysis for the client, the broker confirmed the customer wanted a low rate, a lengthy loan term and a set-and-forget facility. The loan amount required was $4.3 million with a company turnover of approx. $30 million. The broker was aware the structure was complex with several trading entities and property trusts involved, however the broker wanted to establish himself as the relationship manager for the group moving forward.
The solution:
Loan was approved on a principal and interest basis over a 20 year loan term. The broker also took advantage of our low commitment fee promotion of $500 and competitive fixed rates, resulting in the customer fixing their interest rate for three years.
The takeaway:
The appeal to the broker in dealing with ING Direct for commercial loans was that we deal exclusively with the broker in this transaction. Our structure allows the broker to maintain full control of the client relationship during the application process. Our products suit brokers looking for a variety of lending needs for their business customers including loans for mix zoned properties and child care centres for example. Our low entry costs and competitive fixed rates enable a cost-effective refinance to benefit the client. Our broker partners have confidence when referring their clients to ING Direct, aware of our industry leading customer satisfaction and net promoter score (or customer advocacy).
Thinktank
The scenario:
Thinktank was recently able to help two brokers. The initial transaction from Broker 1 was a $2.3M refinance and debt consolidation for an owner-occupied manufacturing business in QLD at 75% LVR. Broker 1's customer then saw an opportunity arise to sell the business, retain the underlying property and rent it out on commercial terms to the purchaser. However, the debt consolidation and refinance would still be required. Broker 2 initially approached a major institution on behalf of their client seeking assistance with finance for the business purchase which was to be completed through a combination of borrowed funds supported by their own commercial property and vendor finance. Unfortunately, the bank subsequently advised it was unable to assist. However, with the comfort gained by Broker 1 and their client, they referred the purchaser to Thinktank. Broker 2 then engaged Thinktank’s assistance to concurrently re-finance the purchaser’s existing loan and provide cash out to support the business purchase.
The solution:
Broker 1 client: Thinktank provided a 75% LVR, 25-year set and forget loan term to consolidate facilities and fully retire any residual creditors of the business being sold. This importantly allowed the client to simplify their liabilities into a single, easily managed long term investment loan.
Broker 2 client: Thinktank was able to refinance the existing loan for the incoming entity and provided equity release sufficient to complete acquisition of the business. An initial interest only term of 5 years was provided so as to minimise the cash flow implications from the higher debt level, including provision for the vendor finance terms (three years P&I repayment), thereby allowing the purchaser sufficient working capital and free cash flow to consolidate and develop the new business.
Each of the facilities for the respective borrowers were documented on set and forget terms over 25 years with no annual reviews, ongoing fees or compulsory revaluations.#pb#
The takeaway:
Get the right people involved. In every property transaction involving a transfer of asset, there is a buyer and seller, each with different but ultimately linked objectives. Brokers should therefore keep in mind that they can potentially add value on both sides of a transaction, particularly when an impasse might arise. With commercial lending, the best solution is not just about the quoted interest rate. On both sides of this transaction, the central consideration involved properly managing the cash flow impacts of the loan structures in the immediate, and for the longer, term. On this occasion, both brokers were able to deliver tailored funding arrangements to support their client’s requirements and had confidence from the involvement of a single, capable lender providing a considered solution and effecting a timely settlement.
NAB Commercial Broker
The scenario:
Our client had been in business for over 40 years and had banked with a competitor for most of this time. Their business had several different family shareholders who were ageing, and new management looking to take advantage of changing market conditions.
Though the business had significant assets, their previous bank placed little value on these, preferring to secure their debts on a traditional basis over residential and commercial property along with a general charge over the business. The client, through their accountant and broker, felt the bank could offer better terms that included reducing the property security provided and structuring a facility to improve overall business cash flow.
The solution:
Working collaboratively alongside the client’s broker, NAB’s commercial broking banking relationship team, equipment finance specialists and in-house credit team were able to go through the client’s situation step by step. Through this process they were able to better understand the nature of their business, balance sheet and cash flow.
NAB then became comfortable to secure the facility purely against the plant and equipment of the business, releasing property security and the guarantees of the ageing shareholders.
The takeaway:
The success of this transaction required a solution outside of the traditional property security lend, so it really came about through the broker’s active engagement with NAB early on in the transaction. As a result of this all parties were able to brainstorm together around the multiple options available.
It then required the trust of the broker to participate in joint meetings with the client and the whole NAB team before approval stage, to ensure any solutions were going to meet the client’s short and long-term needs. Equally importantly, the client felt throughout the process that they would have an ongoing long-term relationship both with their broker and with NAB.
