Funding is crucial in a fast-paced property market, especially if you’re trying to secure a fixed-rate or low-rate home loan. You need confidence that your funding partner will be able to secure the money necessary for your project or needs and that they’ll provide it within the time frame required.
Luckily, there are a plethora of options available on the market, including solutions from non-bank lenders and those providing funds from private pools of capital. With all this in mind, how can you know that you’re choosing the right option for your project or investment?
Choosing between loan brokers, banks and non-bank lenders
In Australia, the few major banks aren’t known for being quick-paced when it comes to dishing out funding, and their turnaround times can inflict stress on those seeking a competitive mortgage. The process becomes even more sluggish when the deal isn’t considered a “slam dunk” for them.
Additionally, if there is more than one party involved, a particularly tricky asset structure, or a difficult pre-sale environment, all of this can impact how long it takes to secure a loan from this type of lender. In other cases, the bank in question may have its own lending limits for non-traditional commercial mortgages or loans.
There are several reasons non-bank lenders are growing at such a fast pace. So here are a few things to consider when evaluating which type of financing is right for you or your client.
Is your lender able to deliver on their promise?
If speed is a priority, make sure your lender can deliver on your schedule. This is a bonus if you can deal directly with the decision-makers, and better yet, if they are backed by an in-house valuation or due diligence team.
Whether you need funding immediately or not, you should always try to borrow from sources with the most favourable terms and conditions. In an urgent scenario like a property settlement deadline, this means looking to non-bank lenders who can provide a mortgage or financing solution in a short period.
However, it’s important to note that price sensitivity depends on how much you need to borrow and for how long. If you’re a new business or a first-time homeowner, you’ll have a budget you need to stick to. As the owner of an established business, your price sensitivity will have different dependencies.
If you’re borrowing for a short period of time, like a few months, you may be less price-sensitive than you would be if you had to pay back your loan in 12 months. Short-term loans with non-bank lenders are often used as a “bridge” to another financing solution, such as a business loan from a bank. They can also be used to provide “catch up” financing if you’ve fallen behind on payments to your existing lenders.
Deciding how much you need to spend
Banks are able to acquire funds at a low cost because they get their supply from wholesale money markets. It’s this very factor that makes them a reliable source of funding for a residential, long-term mortgage.
On the other hand, non-bank lenders, who are agile and flexible, raise money from alternative, more expensive pools of capital and price their loans accordingly. How long do you need to borrow the money for? Sometimes a short-to-medium-term solution is all you need to solve your cash flow problems. In that case, a bridging loan from a non-bank lender may be the best option for you.
The choice between a bank and a non-bank lender is often just a matter of whether you meet their criteria or not. Banks have a fairly tight assessment model that assesses the borrower’s repayment capacity (like steady PAYG employment and tax returns). Self-employed investors and developers don’t always tick these boxes, unfortunately.
In comparison, private non-bank financial lenders also have set criteria, and they tend to focus more on the asset valuation and risk profile. That’s because the loans are typically shorter-term. It also means you’re more likely to get a ‘yes’, if you don’t show bank-like serviceability. This is an attractive pathway for those who aren’t likely to be favoured by the big banks.
Don’t underestimate a specialist non-bank lender in Australia
If you want to do it right, you need specialist expertise to ensure you come out on top. An experienced lender who has insights into the market and your specific needs will be able to add value from the very first conversation – from sense-checking valuations and structuring a win-win deal. They’ll also have the ability to lend to a wider range of buyers, which means they can offer you lower interest rates and better terms.
Like us, lenders who are strong with a substantial balance sheet can also provide funding for almost any real estate transaction, making them hugely beneficial for the right opportunity. So if you’re struggling to find the ideal option for your property funding needs or have a specific property/scenario you need assistance with, please get in touch with the Lightspeed Mortgage team now.