Commercial Finance Broker
Specialist commercial finance explained – Is it better to talk with a commercial finance broker or apply with the bank? For some businesses, a traditional commercial finance lender will cause more problems than they solve. This article will discuss commercial finance brokers and private mortgage managers, their advantages, and how they work.
Speaking to a commercial finance broker can open a range of products and options the bank can’t match. Every business will need commercial finance at some point. Whether you need invoice financing, finance for commercial property in an enormous factory, or a construction loan to build houses, shopping around can save you money, time, and hassle.
Commercial finance from a private mortgage manager like Prudential Custodians is available to anyone who owns or is part of a business that requires funding, with generating a profit being the ultimate objective.
Using a commercial finance broker: More options, tailored commercial finance interest rates
Commercial finance should be a better fit for businesses. Yet, here at Prudential Custodians, we repeatedly see business loans fail customers. Solutions often are not versatile enough to match various business objectives. Some commercial finance is the root of more problems than solutions, with prohibitive terms and conditions, lengthy application processes, and delays when projects finally get started.
The trouble with banks is that they offer a limited selection of commercial finance products. Unless businesses are fortunate and stumble on a bank or traditional lender who offers something suitable by chance, they’ll likely be a bad fit. Products lack the customization of private commercial finance options, which means businesses are increasingly looking further afield – to private mortgage managers – for funding.
Suppose you’re in the agriculture sector, for instance. In that case, talking with a private mortgage manager who specializes in that industry instantly puts you in touch with financiers who know your specific challenges. Whether intermittent revenue or adverse weather events, you’ll likely experience a faster application and a commercial finance option that suits your needs and business.
Similarly, if you trade in the construction sector, a private mortgage manager won’t just appreciate your inherent difficulties; they’ll also know about the industry’s positives. That can lead to more cost-effective, tailored finance options. Packages that get you from A to B with far fewer delays.
Commercial finance explained – Sector-specific funding.
Whichever sector you inhabit, and no matter where in the country you operate, there’s a private commercial finance solution for you. At Prudential Custodians, we think the process of tailoring finance solutions begins as soon as you make a call. While we assess projects and businesses just like a bank does, we go further than just appraising the risks. As a business, you deserve a fair go, and at the heart of every venture is the potential to generate profit. That’s why we’ll look at your unique advantages and consider the outcomes of projects. After all, profit is why you got into the venture in the first place, and it should get the same level of consideration as risk.
Next, we’re going to examine how, as a private mortgage manager, Prudential Custodians helps a broad range of businesses in multiple sectors with various funding needs, targets, and potential problems:
The commercial finance broker in Brisbane and the construction project with a funding problem
One construction sector client had difficulty sourcing finance for a potentially profitable project on the Gold Coast. The site had a recently approved DA to build a twenty-apartment block near the waterfront and was ready to go. Funding should have been a given, but the developer wasn’t getting the answers it wanted from the bank.
The main sticking point was pre-sales. The bank only wanted to fund 70% of total development costs (TDC), and the contractor could handle that. However, the lender insisted on a relatively high percentage of pre-sales (50%), which posed a couple of different issues for the builder. Firstly, it meant sales and marketing efforts early in the project, and the developer was eager to get the project started and stay on a two-year completion schedule. Secondly, the developer was reluctant to sell half the luxury apartments with ocean views off the plan.
Disheartened with the bank and frustrated with a lack of progress, the developer decided to look for a commercial finance broker in Brisbane. After a recommendation, the client spoke to Prudential Custodians, and we immediately requested all the project details. Having long-term partnerships with some of Australia’s premier private construction financiers, we quickly addressed the developer’s primary concerns: minimizing pre-sales requirements and getting workers on site quickly.
We achieved that by basing our evaluation on GRV (gross realization value). Whereas the bank used TDC to structure a finance package, as a private mortgage manager with access to specialist funding options, we assessed the specific project based on its merits, including the end value. This luxury apartment block would be built in an affluent oceanside neighbourhood with high demand for apartments. That meant each would sell for an average of $1.3 million, meaning the project would generate sales of around $26 million. Compared with the TDC for the project, the GRV figures looked great. TDC was approximately $14 million, with the land purchase cost of $4 million.
We discovered that the developer had spent four years sitting on the land during a lengthy DA application upon further inspection. Due to the passage of time and a booming market, plus the site now had a fully approved DA, we revalued the site at $7 million.
That allowed us to advance the difference of $3 million to get construction underway immediately. Due to a DA, the construction finance came with no pre-sales requirements because the equity increased value. On top of that, with the project promising to return a profit of around $12 million, the developer was able to renegotiate further funding on the same terms. After getting the project well underway using the initial increased site equity, the developer was able to find a cost-effective funding option that got the deal well over the line and allowed for extensive sales and marketing during the latter stages and after project completion. That maximized returns, and the completed apartments sold more quickly than when the developer had been forced to sell off the plan in the past.
The commercial finance broker in Melbourne and the business owner with a tax debt
After years of bad experiences with banks, one successful business owner turned to Prudential Custodians after searching for a commercial finance broker in Melbourne to solve a problem with tax debt. When they came to us, the founder of a Victoria-based tech start-up was facing down a costly, two-year ATO payment plan for $1.5 million.
Difficulties had arisen because, after a period of business growth, the start-up found itself cash-poor. Projections said the situation would stabilize over the next couple of years. Still, the tax debt was proving expensive to service, and the business owner needed to source an alternative arrangement fast.
The company was renting limited office space, but 90% of its employees had been working from home since the pandemic – and the business intended to pursue a hybrid working model long-term. That meant the company had no access to property equity, and the nature of the firm also offered very little in terms of tangible assets.
Prudential Custodians examined everything to find a more cost-effective funding solution as a private mortgage manager. The founder held several properties in Victoria and outright owned one luxury $2.5 million Melbourne apartment. We were able to source a secured tax debt loan that allowed the business owner to ditch their ATO payment plan altogether, reducing monthly costs by over 50%.
The manufacturer, a new packaging plant, and the commercial finance broker in Sydney
Our client was one of the biggest complementary medicines manufacturers in Australia. The company searched for a commercial finance broker in Sydney after falling foul of rigid bank lending requirements.
At Prudential Custodians, this isn’t a rare occurrence. Adequate finance for the commercial property should be fit for purpose, and that’s rarely the case with generic loan options offered by banks and other traditional lenders. The trouble with off-the-peg solutions is that they don’t account for the intricacies of different projects, businesses, and ventures. For commercial finance to work well, packages need to be designed around the unique challenges and positives of a particular business task, target, or project.
In the case of the manufacturer, that amounted to delays that threatened to cause some severe problems. After winning a big overseas client, the company needed extra packaging capacity quickly. The recent deal was an order for $4 million worth of vitamins each year. With a state-of-the-art, fully approved manufacturing facility in Greater Sydney, producing the product wasn’t an issue – but the company would need to extend its current packaging plant to cope.
The primary problem with bank finance was how the lender intended to structure the package. Construction would entail several phases, and industry regulators needed to inspect the site on several different occasions and upon completion after commissioning specialist packaging equipment. The bank proposed a gradual release of funds and would only proceed with each phase after their checks. The company directors envisaged that considerable delays would take the project past its tight deadline, so they decided to look for an alternative solution.
The deal rested on the company to complete the plant within a tight eighteen-month schedule. Due to a complex approval process in the complementary medicines industry, getting everything in place on time would be challenging. The company already had multiple DAs for its manufacturing site but needed a fast-funding solution to get work underway.
Upon approaching Prudential Custodians, we immediately identified that the company held considerable equity in its Sydney headquarters, which also housed the factory. That amounted to $25 million in commercial property, so we were able to arrange the $8 million construction finance required to complete the project without delay. Not only that, but because of the equity in the company’s commercial property, we were able to advance funds without the need for multiple inspections during the build, meaning the manufacturer got the project completed slightly ahead of time and retained the new overseas client.
