Overview  Find out how to refinance loans with sector-specific specialist financiers. The outstanding features and terms for your project or business. Save time and money. 

Is your current commercial loan causing you problems? Need to refinance a loan and want to get the choice, right? This article will look at the benefits of taking a bank out and moving to a private financier. Get better features tailor-made for your enterprise or project when you refinance a commercial loan with a personal mortgage manager.  

 

Are you tired of dealing with banks and traditional lenders and need to find a more versatile funding option for commercial property or construction? Private mortgage managers like Prudential Custodians are experts at sourcing specialist commercial refinance solutions that meet the needs of a broad range of businesses. 

 

Refinance Loan Meaning

Moving from one source of funding to another, typically mid-project or loan term. Owner-occupiers might refinance a home loan; property developers may look to refinance construction loans. In this article, we’ll look at refinancing a bank loan with a private financier and the benefits. 

 

Whether you’re a homeowner looking to refinance a home loan or a business with shifting needs, when you refinance any loan, it’s essential not just to get a lower interest rate. There is a lot more to consider with business finance, and Prudential Custodians is making sure you find the best source of funding for your specific requirements – which differ vastly from sector to sector and business to business. 

 

How much can I borrow when I refinance loans? 

 

It’s a good question and one that we often hear at Prudential Custodians. If you’ve primarily relied on banks and traditional lenders in the past, you’ll know that sourcing funds can be a nightmare. Specifically, sourcing enough funding can seem like an uphill battle, with lenders only willing to take minimal perceived risks and offer a relatively low LVR. Yet, it’s not only that. Traditional lenders, such as banks, also have a particular method for evaluating commercial loans, projects, and business activities. 

 

When you ask yourself, how much can I borrow when I refinance? The answer will depend on what you need funding for and what security you can provide. That will be true whether you choose a private mortgage manager, commercial finance broker, or decide to borrow from the bank – but some options will look more closely at your project or purpose. 

 

This is where the differences between a traditional lender and private investors come to the fore. On the one hand, banks have a narrow band of pretty off-the-shelf products they can turn to when your business approaches them for a loan. Banks’ loan officers are also tied to a relatively rigid set of lending criteria. They’re forced to assess construction projects in much the same way they’d consider an asset finance package, for example. Security and equity requirements are confined to bricks and mortar or existing assets.  

 

For some sectors and businesses, it just doesn’t work. In short, banks and traditional lenders often overlook what a specific project or business goal has to offer. One way of looking at it is your business has identified a profitable opportunity – hence, you’re looking to gain access to funds. However, the bank is ignoring what attracted you to the project in the first place. Because of their uncompromising, inflexible approach, the project looks terrible on paper – even though it will return a considerable profit. In some sectors, the traditional system when you refinance loans is impossible at worst and expensive and awkward at best. 

 

Refinance loans in Australia: Banks Versus Private Mortgage Managers 

 

However, on the other side of the coin, you’ve got private mortgage managers and commercial finance brokers. When you approach one, you’ll discover an additional dimension to the process. Sure, when you refinance loans, commercial loan brokers and private mortgage managers look at the same things the bank would. For instance, if you’re looking to refinance a construction loan or property development finance, they’ll evaluate every single aspect of the project carefully and look at your business and track record. Private mortgage managers also need to see a healthy, viable return on investment and a well-planned project exit – just like you do. However, while that’s where the bank typically stops, commercial finance brokers and private managers go further. 

 

Banks and traditional lenders assess construction projects based on the total development costs (TDC) and your business accounts. They look at the cost of your land, the build costs, and other expenses like marketing, council rates, and real estate agent fees. Banks also assess your ability to repay the loan during the term – which partly defines how much they are prepared to lend. The trouble with that approach is that there’s typically a relatively long construction period between investment happening and revenue coming in for construction companies and property developers.  

 

As a result, banks and traditional lenders tend to err on the side of extreme caution and advance a portion of the build costs throughout the project, with regular checks and inspections needing to be passed after each construction phase. It’s inconvenient for developers because it often causes hold-ups, costing money. Many builders find themselves operating right on the edge of what’s feasible, and projects get more stressful, time-consuming, and less profitable as the commercial loan term goes on. 

 

Banks Versus Private Mortgage Managers: An Extra Dimension 

 

You’re likely asking two primary questions when you refinance a loan: 

• How much can I borrow when I refinance? 
• How will the new commercial loan work day-to-day? 

 

The answer to both those questions does depend on how far you look for a lender and whether you decide to refinance with a bank or a private option. That is tied up with the way they both evaluate borrowers and projects. 

 

You see, the difference with a private mortgage manager like Prudential Custodians is it’s a lot more like talking with a business partner than a traditional lender. We think like finance professionals, but we also bring your industry knowledge to the table. That allows us to evaluate projects and clients differently from banks. 

 

Let’s consider the same construction project we mentioned earlier. It’s a very typical scenario for Prudential Custodians. At some point in time, a developer’s priorities and site conditions have shifted. After approaching the bank to extend or refinance a construction loan with different terms, they’ve received notice that the finance is maturing as a reply. 

 

Unfortunately, this is far from unusual. It’s essentially a product of the fact that banks and traditional commercial loan options are inflexible. In construction, the scenario arises for a few different reasons, but let’s look at a prevalent example: 

 

Refinance a Construction Loan: Case Study 

Our client was a successful property developer based in Melbourne. The business had sourced a construction loan almost two years previously to build eight luxury townhouses on a site in the eastern suburbs. The bank had taken six weeks to approve the funding, which meant the project had a delayed start. However, after a thorough evaluation, the bank’s loan officer agreed on how to lend 70% of the TDC, which equated to $4 million. 

 

The lender was a little concerned that the builder would generate very little revenue during the two-year loan term, so it set a significant pre-sales requirement of 50%, meaning the builder would need to sell four of the townhouses off the plan. This wasn’t ideal for the developer, but after a drawn-out application process and much back and forward with the bank, the business signed up for construction finance, and the project finally got out of the ground.  

 

The project hit trouble as the loan term was nearing its end. The developer decided to refinance the loan after getting absolutely no joy from the current lender. The main issue was with sales. Building work had gone according to plan and was only a few weeks behind target after the developer had gradually clawed back most of the delay resulting from the lengthy commercial loan application.  

 

However, the developer was concerned that with each townhouse projected to fetch $1.1 million and a healthy market in the neighbourhood, selling off the plan had seen four sell for just under a million dollars. Knowing that luxury properties achieve better prices after they’re complete, the developer was eager to refinance a loan and buy extra time to market and sell the townhouses after the project – and crucially, the bank construction loan – had ended. On top of this, the developer had already identified a lucrative new project and wanted to get that started while sales and marketing efforts on the existing site continued. 

 

None of this was unusual for an experienced property developer, and the business expected the bank would see things the same way, but that wasn’t the case. When the developer contacted the bank to refinance the construction loan, the lender refused instead of issuing a notice that the finance was maturing and needed to be repaid—which compounded problems for the developer. The business would have very little time to sell the remaining stock, but it was looking like the new project was going to fall victim to events on the existing site. 

 

Keen to generate optimal profits on the current site and find a way to move forward with the new one, the developer approached Prudential Custodians. We looked at all the ins and outs of both projects. On the current site, the developer was close to successful completion and almost ready to sell the remaining four townhouses for at least $1.1 million each. The project promised to be profitable, with the original TDC of $4 million being turned into around $8.2 million. Even though the developer was yet to generate $4.4 million of that, Prudential Custodians considered the gross realization value of the project – or its end value. Essentially, the developer was sitting on $4.4 million in equity. It made sense to ensure the business achieved that rather than selling in a rush and losing up to half a million dollars to meet the bank’s inflexible demands. 

 

As a result, we connected the developer with a specialist construction financier who saw the value and wisdom not in just the current project strategy but also in getting the next project out of the ground as soon as possible. We were able to quickly arrange a construction loan refinance based on the current project’s equity and put funding of $1.3 million in place to get the new venture started. At the same time, the developer continued to pursue sales and marketing in the eastern suburbs.