LIKE MOST COMMERCIAL PROPERTY investors … you are mainly concerned with obtaining the best rates and terms possible, when it comes to funding options.
As a general rule, you will find these with the major and second tier banks — their cheap cost of funds are able to on-lend at often attractive terms. And in the current environment of high competition for business and low interest rates, the bigger lenders are a good place to start.
However, the banks offer quiet conservative loan parameters, which may mean you and a significant amount of the population cannot borrow through them.
The Limitations of Conventional Lenders
Major banking institutions may be reluctant to lend to you money for:
- Purchases by property developers
- Land deals
- Vacant possession commercial property
- Specialised properties (such as service stations)
So Where Else Can You Go?
There are large number of alternatives available for you — that are little known and little advertised. Below are summaries of two less conventional funding options that are available in the market.
With the wave of legislation and regulations that came into existence in the aftermath of the Global Financial Crisis (GFC) — the reputation and viability of the mortgage funds was perhaps the most damaged sector.
Traditionally, mortgage funds have raised money directly from investors. Either via debenture or direct investment secured by mortgages over property.
There have been a recent string of mortgage fund failures, the highest profile recent failure being that of the Banksia Financial Group. And combined with new regulations, such as the bank deposit guarantee, means that many such funds are now no? longer viable.
However, a small number of mortgage funds continue to operate. And the better organised funds offer you a useful and less conventional funding option.
Historically, mortgage funds and private mortgages have largely operated through solicitor’s firms that were permitted to raise investor funds.
The recently-introduced regulations for managed investment mean that this sector now comes under the same regulation as any scheme.
Many solicitors firms still maintain a client base of private lenders. And they can put together funding options that are either outside of ASIC regulations of managed investment schemes or comply with them.
Some, if not most, of the mortgage funds that are still in operation, started as solicitor’s funds and are still operated out of solicitor’s firms.
BOTTOM LINE: This is a very brief run-down of two of the various non-bank funding sectors that operate in Australia.
If you are looking at alternative funding outside of the banking system, it is important that you get good advice as to which products suit your situation.
In the next article (Part 2), we’ll discuss three other less conventional financing products that are available in the market.