Overview Business finance that matches your vision & ambition. Find out how a commercial finance broker can turn your project strengths into cost-effective funding.
Find out about the different types of commercial loans available: When you’re trying to find the best finance for commercial property, what’s the best way, private v bank? How to use property equity when you borrow, and why a commercial finance broker could find you a far better rate.
It’s a question many property developers and business owners ask themselves: is it better to consult with a commercial finance broker or apply with your regular bank? The answer, like so many things, depends on your specific circumstances. Still, this article is designed to outline the differences in how banks, traditional lenders, and private mortgage managers assess loan applications.
Private Versus Bank: Not all types of commercial loans are the same
Private commercial finance and speaking with a commercial finance broker can save you time and money, but it can also lead to a more tailored loan structure. Beyond commercial finance interest rates, traditional loans often come with prohibitive conditions that can delay projects and take up valuable time. Not all financiers approach specific tasks in the same way. Conventional lending is often more concerned with a rigid repayment structure and focuses on your business’s ability to cope with that. While all financiers assess that element, some consider other things too – such as the potential for your project or venture to produce a profit.
Commercial finance can be structured for many purposes, like property development, construction, and business growth. However, in this particular article, we’ll look primarily at how finance for commercial property is structured, what it takes to qualify with a private mortgage manager, and who uses it.
Finance is a necessity for nearly every business out there. You’ll likely consider commercial finance options, whether that be to expand a thriving business, take on new property development, or refinance an existing venture. Choosing the right commercial finance can save enterprises tens of thousands of dollars every year. The key to finding a suitable finance option is to look beyond some more obvious sources. Many business owners and company directors are surprised to see what’s available in the modern marketplace.
Finance for Commercial Property: Different Types of Commercial Loans
You’ll need to own or be a part of a business that requires a funding option to generate a profit to use commercial finance. There are many reasons a company might need commercial finance, ranging from short-term construction loans to invoice financing, asset finance, and growth. Some organizations use finance to build giant factories, while others apply for commercial finance to purchase vehicles or machinery. A whole heap of construction firms and property developers of all sizes also use specialist finance to build commercial and residential projects. In Australia, there are many different types of commercial finance. What can be surprising is the difference in accessibility and how various lenders approach the evaluation of applications.
Property Development Finance: Private V Bank
Property development finance should be a lot more straightforward than it often is. Developers’ trade-in potential and the key to finding effective loan structures and rates exploit that fact. Even so, many developers get frustrated with traditional finance for commercial property. The primary cause of that is how banks approach borrowers. Rather than evaluating individual projects, they concentrate pretty much wholly on businesses – and that doesn’t always suit.
Property developers typically need relatively short-term solutions – two or three-year terms, depending on the project – and flexible options for extending or adjusting loans. They require minimal delays and checks during construction. Developers need to know contractors will be paid without delay, or they risk losing workers and costly hold-ups.
Banks and traditional lenders tend to fail property developers because they impose strict terms and require multiple inspections during projects before they’ll release funds. They also base lending on a portion of the total development costs (TDC) for each task and often specify a hefty percentage of pre-sales. Private mortgage managers like Agility tend to base an evaluation on the project’s end value. For instance, if you’re set to generate a profit of 8 million dollars, and your TDC is $10 million, a private mortgage manager will likely be able to source specialist property development finance that funds all your construction costs and the price of the land – with no requirements for pre-sales.
Construction Finance: Private Mortgage Managers
Even when your project starts from scratch, private mortgage managers can find ways to exploit the value tied up in your venture so you can access funds to get it out of the ground and start generating a profit.
Where banks often fail developers most is in project appraisals. They tend to offer a very narrow range of in-house products and have strict, immovable criteria for qualification. Take, for instance, the builder who recently approached Agility after months of attempting to negotiate with his regular bank. Despite his business operating in a very specialized field for over a decade, he hit a wall when trying to get the bank to revalue a plot of land in Brisbane.
The developer had bought the land in 2018 for $5, intending to construct eleven luxury houses in a popular neighbourhood. After spending three years obtaining a suitable DA, the developer had a construction crew in place and wanted to get things moving quickly. He tried to use the uptick in value from the DA to get work underway, but the bank refused to budge on the 2018 purchase price of his land.
Frustrated, the developer searched for a commercial finance broker in Brisbane and got a recommendation for Agility. We quickly helped him revalue the plot. The land was considerably more valuable with a DA in place – at $7.2 million. The project ultimately promised to generate more than $16 million in revenue, with a TDC of around $10 million. We were able to source refinance for the land and advance the $2.2 million difference to the builder to get the project underway immediately. Later in the building process, we helped restructure the finance to exploit newly generated equity. Within two years, the developer had sold all eleven houses and exited the project successfully.
Residual Stock Loans: Bridging Finance and Maximizing Construction ROI
Many builders and developers encounter problems with traditional lenders when nearing the end of projects. A combination of two things cause that; a maturing loan term and a resulting pressure to sell stock.
Developers tend to achieve higher prices for apartments, offices, or houses after completion. Buying off the plan can be riskier, and prices tend to get compromised. However, when the end of a loan term is approaching, banks often pressure developers to sell stock and settle finance. It’s less than ideal and can severely impact what a project ultimately returns.
Private mortgage managers like Agility can help source solutions that unlock the value in residual stock so that developers get more time for marketing and sales activities. You can also use the equity in residual stock to get your next project underway, which means there’s even less pressure to compromise ROI at the end of development.
Bridging finance like this also considers project end value. In the case of the Brisbane developer, we helped him use the equity in seven unsold houses to get a new apartment project underway – equating to around $10.5 million in commercial finance. While he concentrated on getting the latest development out of the ground, his sales and marketing people had ample time to get the best price possible for the unsold, completed houses.
Business Development and Commercial Property Finance: How to Choose
You don’t need to be a builder to use finance for commercial property. Some businesses find themselves needing more extensive or more modern premises. Whether a larger office or a state-of-the-art manufacturing facility, a commercial finance broker can often help.
If you already have equity in an existing commercial property, a private mortgage manager like Agility can help you unlock that and access secured commercial property finance to move to a new building, construct new premises, or extend a current facility. Secured finance is a lot cheaper to service than an unsecured business loan.
If you don’t have equity in commercial property, all is not lost. Many businesses hold substantial and valuable assets in machinery, vehicles, or other equipment. You can still use that to provide security to a specialist lender and access lower commercial property finance interest rates.
Tax Debt Loans: Using Assets Instead of an ATO Payment Plan
Many businesses have struggled with various previously unheard-of challenges during the past several years, and a result of that has been many struggling with tax debt. ATO payment plans can provide a lifeline if your business is asset-poor. However, they’re relatively expensive to service, and missed payments mean further fines.
Private mortgage managers like Agility help many Australian businesses source cheaper tax debt loans by unlocking commercial property equity and the value of assets like vehicles and machinery. You can use the equity in a factory, office building, or even a farm as security against a tax debt loan. Security means a lower risk for specialist lenders, and they reward that with lower borrowing costs. As a result, typically, with tax debt finance, businesses can expect to reduce or remove an ATO payment plan from the equation and lower monthly tax debt borrowing costs substantially.
Commercial finance broker: More options, tailored rates, and structures
We believe commercial finance should be more suited to commercial activity here at Agility. A commercial finance broker or private mortgage manager can access more options than a loan officer at your local bank. They also develop long-term relationships with private investors specializing in different sectors and ventures to offer more versatility.
Using those relationships, private mortgage managers are free to evaluate different projects, business problems, and ventures on merit. We look beyond the challenges of running your business and use your unique advantages to source cost-effective, flexible commercial finance solutions that help your project along rather than hinder it.
Traditional options for commercial finance cater to a broad range of potential applicants. As a result, they lack the specialism of custom-made commercial finance solutions and can never hope to match the agility of private business financing. Having access to fast, convenient, and tailor-made funding can differentiate between a successful venture and a missed opportunity. Experienced business owners know that the key to profit is being able to identify a great project.
At Agility, we believe in funding that can live up to your vision and ambition.