Happy Customers
When timing is critical and you need to move fast to secure a great deal, often you discover that the banks tend to move too slowly, bogged down with bureaucracy and red tape. Banks are bound by strict lending criteria and legislation and the need for extensive documentation. That’s how they operate, but it doesn’t reflect the world of modern business.
If you’re a developer with a settlement deadline or a business with complex finances, the big banks are not going to work with you to make your success happen. However, private lending with the help of Hodgestone Finance can save the day. Low doc commercial loans or private commercial loans are just the start to help you achieve your dreams.
In this article we’ll give you 5 scenarios where private lending isn't just the best option, it’s the smartest option.
What is a Private Lender?
First let’s establish what a private lender is. A private lender is an individual or a non-bank financier that provides financing secured by assets. These assets are usually in the form of property and real estate. They offer faster, more flexible loans over the short-term, perfect for business needs. To do so, often the interest rates are higher and the fees are higher than the banks. Businesses use private lenders when they are unable to meet strict bank criteria, or cannot afford long approval times for loans.
5 Scenarios Where Private Lending Makes Sense
1. Urgent Real Estate Acquisitions
For ‘fix and flip’ projects where you buy a property, renovate and increase its value, then sell it for a profit, you often need a quick loan to purchase the property. The loans associated with these projects are often short term loans, no more than 24 months and focus on the property’s potential value rather than the borrower's income.
Approvals can take as little as 24 hours to complete, and often settlement of the property occurs within weeks (or even days if the need arises), rather than months. This allows investors to secure properties quickly and get into the fix-up part of the project.
This is asset-based lending, so the private lenders look at the ‘as is’ value of the property and the ‘Gross Realisable Value ’ (GRV), rather than strictly the serviceability assessments. Lenders can generally provide up to 75% LVR in metropolitan areas where the chances of a quick sale are high.
The loans are generally set up with capitalised interest , however can be interest only where servicability is evident, so it can free up cash flow for renovations.
It makes sense to use a private lender in this scenario if the property needs a lot of work before it is resold, so the real ‘fixer-upper’ property that standard banks would hesitate lending money for.
If you need to move quickly to snap up a bargain, the speed of a private lender works in your favour. Sometimes you need the financial speed for settlement at auctions, or if a property suddenly becomes available off-market.
Understand that private lenders would be looking for experienced house flippers and solid project proposals before lending you money. You need a clear exit strategy for this loan, such as- selling the property at a profit, so lenders will know how and when they will be repaid.
2. Bridging Finance Between Property Settlements
Private bridging finance provides fast, short-term loans, usually no more than 12 months, secured against property. This helps to cover the timing gaps between purchasing a new property and selling your existing property. This helps if you’ve found a new place for your expanding business and you need to move on it now, without having to wait for your current place of business to sell.
It makes sense to use a private lender for this type of loan as they offer faster approval times when compared to the banks. The loan is secured against the equity in your current property, which you’re going to sell anyway. It allows you to buy before selling, which can take the stress off finding a new place.
Understand that bridging loans do have a higher interest rate, and it can be expensive managing two loans at the same time. So weigh up the pros and cons of convenience versus cost.
3. Property Development or Construction Finance
Loans for development and construction can be fast and flexible when using a private lender. You need to be nimble in the property market, and waiting for months, with a traditional bank, is often not a smart business option.
Private lenders focus on the project itself, the feasibility of the idea and the land value associated with the project, rather than the credit history of the person, or business, applying for the loan.
It makes sense to work with a private lender for a construction loan as they can tailor a loan to suit you. They can adjust repayment schedules and construction drawdowns, often with no pre-sale requirements.
The loans are secured against the project which makes them a good choice for first-time developers or those with a less-than-perfect credit history.
This type of loan is commonly used for land banking, renovation, multi-townhouse projects and commercial builds.
4. Distressed Financial Situations (ATO Debt or Bad Credit)
If you’re an individual or a business with an Australian Taxation Office (ATO) debt, have bad credit or some urgent cash flow issues, generally the banks will not loan you any money as you are too much of a risk. Private lenders, on the other hand, can focus more on tangible assets, such as property equity as security, rather than credit scores or other recent financial missteps.
Private lenders can personalise terms and conditions of the loans, security for the loan and methods of repayment, to suit your situation and where you are right now. They are less strict and rigid than a bank, which is beneficial to some borrowers.
It makes sense if you’re in some financial distress, to approach a private lender. Often loans from a private lender are used to clear ATO debts or creditors, to help get borrowers out of a bad financial situation.
These loans are almost always secured by real estate. So while you may be in dire financial straits, if you own property, then you can still find a way to get a loan.
Often the lenders take a practical approach, unlike banks. They can allow interest to be capitalised (pre-paid) so no monthly repayments are required during the loan term, keeping cash flow freed up.
These are often short term loans, no longer than 24 months, to help with a temporary situation someone finds themselves in.
5. Asset-Rich, Cash-Poor Business Owners
This term describes someone who has a high net worth, whose fortunes are tied up in real estate, businesses or retirement accounts. They lack cash flow, their wealth is not easily accessible. When it comes to investing into commercial real estate, these individuals cannot easily get the money to do so on their own.
Private lenders can help them secure a loan secured against their real estate and high-value assets, rather than rely on cash flow as an indicator of their ability to service a loan.
It makes sense for someone who is asset-rich to work with a private lender due to their ability to focus on the equity in the property for security rather than any income documentation. This process can take just 2-3 days for approval, whereas a bank would take weeks.
Private lenders have that flexibility that regular banks don’t have. They can set the terms and conditions of repayment, focus on assets, not cash flow in regards to a person’s ability to pay back the loan.
The self-employed are often the biggest beneficiaries of this type of loan. They may have inconsistent cash-flow from not being regularly employed, but they have equipment, or property, assets which they can use as security.
Why Should You Use a Private Lender?
If any of the above scenarios describe you, then you know why you should be using a private lender. Their flexibility and knowledge of the industries that most often use their loan services, make them ideal for making the perfect arrangements now, rather than waiting weeks for the banks to make up their minds.
Hodgestone Finance can help you obtain speedy finance to get you out of debt, to help finance a project fast, or to take advantage of a great opportunity before it slips through your fingers.
If you’ve tried getting finance from a bank and have been frustrated with the paperwork or the time it takes for approval, then get in touch with the team at Hodgestone Finance today so we can help you fund your projects and help increase your wealth.
We find you the suitable loan that works for you.
Take the first step toward financial freedom with our quick and hassle-free loan process. Apply now and secure your ideal loan.
