The banks main focus
The main focus of the banks is serviceability, security and LVRs. As such when businesses get in trouble, or they wish to realise future profits that aren’t yet manifest, it becomes very hard for business owners to get the funding they need!
When you don't meet bank serviceability
If business owners are in trouble, the banks won’t lend them more money as they don’t meet the serviceability requirements. If they are rapidly growing, and their future profits are yet to manifest, the banks won’t lend them more money either, as they focus on historical performance most of the time.
This leaves business with a catch 22 situation, damned if you do, and damned if you don’t.
What is the solution?
Private lending
In short private lending / private credit / private debt as its known by many names in the industry.
There are many forms of private lending, ranging from secured debt to unsecured cashflow lending.
Cash injection
In our experience when business owners need a short-term cash injection, the quickest and one of the lowest cost options compared to unsecured cashflow loans or even secured cashflow lending like invoice financing, is a second mortgage or caveat loan!
Second mortgage loan
Ideally a second mortgage loan is typically used for a short period of time, from 1 months and no longer than 12 months. Interest and costs can be paid out of the loan amount in advance so you don’t need to service it, and funds can be provided within the week, no credit check, no financials, and no headaches providing the LVR is within 80%.
Short term lending
The whole point of using a second mortgage loan, is such that the funds provided, help solve the short term problem that you are facing.
As long as the inconvenience solved, or the return on capital is greater than the cost of the second mortgage loan or caveat loan, then it makes sense to get it! But you should not be putting good money in after bad, if you have underlying structural issues, or aren’t sure that even with the funds, you’ll be unable to get out of trouble.
Cashflow issue solved
Once the free cashflow issue has been solved, you can then repay the funds via the profits made, or if your situation is fully rehabilitated, you can then opt to return back to the banking system for a refinance or low doc loan.
