Private credit Investments that are unique
Direct lending investments
Have the flexibility to choose the deals, deal size, security types, risk levels and returns you want. All of our direct lending deals ensure you're in control. All loan loan documents are done in your entitys's name, to make you the funder on title. Our exclusive deals are on an invite only basis. Below is an overview of some of the opportunities we offer.
- First mortgages, net returns of 8% to 14% p.a.
- Second mortgages, net returns of 16% to 24% p.a.
- Heritage plate loans, net ret turns of 16% to 20% p.a.
- Lender and business warehouse facilities, net returns of 9% to 30% p.a.
- Special debt situations working capital, net returns of 30% to 60% p.a.
Private credit with high yields
How does direct lending model work?
Our direct lending investments are made for wholesale investors who want to be the direct funder without syndication. What does our model entail?
- Deal origination: We originate deals to match individual investor preferences.
- Initial diligence: We conduct initial DD and provide recommended deals terms. After a letter of offer is executed by the borrower, formal DD takes place to your satisfaction.
- You have control and legal claim: All loan and mortgage documents are done under your lending entity's name.
- We don't touch your money: All funds are handled by you or your lawyers.
- Loan admin management: We work with you to help with loan management admin.
Direct lending that gives you peace of mind
RSC direct lending investments and borrower risk profile.
At RSC we have two borrower profiles for first mortgages.
RSC low doc loan applications.
- Borrowers have good credit scores and are bankable.
- Meet second-tier lending criteria.
To attract these borrowers, we offer second tier rates, interest only terms for 1 to 3 years and an easier application process.
Full private loan applications.
- Borrower does not meet bank or second tier criteria.
- Borrower does not wish to deal with the banks.
To attract these borrowers, we offer an expedited loan process and unique products for special situations.
A full break down of deal returns is provided below or start working with us today!
Fixed income investments with peace of mind
First mortgage private credit investments
We have two types of first mortgage products, low doc or private loan applications. Net returns are subject to LVR, borrower risk profile, property type and uregency.
Property LVRs and deal sizes
- Residential property up to 80% LVR in metro cities.
- Commercial property up to 75% LVR in metro cities.
- Deal sizes start at $500k up to $5M
Low doc net returns and duration (borrower meets second tier requirements).
- 1 year to 3 years.
- Net returns of 8% to 9.5% per annum.
- Paid monthly.
Private loan net returns and duration.
- 3 months to 1 year
- Net returns of 8.5% to 14% per annum.
- Paid monthly or paid in advance
High return private credit investments
Second mortgage private credit investments
Want higher returns? A second mortgage private loan investment is the way to get you there with property as security. Our second mortgages only sit behind a bank or a second tier lender only.
Property LVRs and deal sizes
- Residential property up to 80% LVR in metro cities (first and second combined).
- Commercial property up to 75% LVR in metro cities (first and second combined)
- Deal sizes start at $200k
Net returns and duration
- Fees and interest paid in advance
- 3 month to 12 month investments.
- Net returns of 15% to 26% p.a.
- Funder must have the capacity to underwrite the first mortgage to reduce risk.
Private credit, direct lender warehouse facilities
Private credit investments, lender warehouse facilities
Provide the capital that private lenders need to grow their loan books by lending them the capital they need via investment into a private credit warehouse facility.
The advantage of these facilities is you are providing funds to a private lender that then uses your funds to do micro loans, with the lender managing the loans and you having the loan book as security!
Gain the benefit of reduced concentration risk, passive investment and a higher net return. Typical scenarios involve providing funds to invoice financiers, or other lenders with specialised debt books.
LVRs and deal sizes
- Up to 90% LVR of the loan book size.
- Deal sizes start at $2M up to $10M
- Deal concentration of no more than 5% per any one loan.
- Security registered against the lender loan book or a carved out asset pool.
Net returns and duration
- Interest paid monthly
- 2 to 3 years
- Net returns of 9% to 15% p.a.
Private credit, business warehouse facilities
Private credit investments, warehouse facilities for B2B
Provide the capital that businesses need to grow their own loan book, so they can sell more of their products / services. In this scenario, we provide a warehouse facility to a business.
The advantage of these facilities is you are providing funds to a business, that does micro loans with a number of individual borrowers and guarantors. The business also has the right to buy the equipment in the event of default by a borrower, so the warehouse facility gets its principal funds back, helping to further mitigate risk.
LVRs and deal sizes
- Up to 90% LVR of the loan book size.
- Deal sizes start at $1M up to $2M
- Deal concentration of no more than 5% per any one loan.
- Security registered against the loan book or a carved out asset pool.
Net returns and duration
- Interest paid monthly
- 2 to 3 years
- Net returns of 15% to 30% p.a.
Private debt alternative assets
Private debt investments, heritage plate lending
We were the first in Australia to do lending against heritage plates. Heritage plates are multibillion dollar asset class in Australia, and in many respects, they are one of favourite assets to lend against. Firstly, because we transfer the title to your name for the course of the loan, and econdly because returns are in the double digits for conservative LVRs.
LVRs and deal sizes
- Up to 65% LVR of the plate value.
- Deal sizes start at $200k up to $2M.
- Plate title is transferred to your name during the loan duration.
Net returns and duration
- Interest paid monthly or paid in advance.
- 3 months to 12 months.
- Net returns of 14% to 20% net returns.
Private credit special situations
Private credit investments, special situation credit
We provide credit in special circumstances such as business restructures, inventory purchases and special contract management situations. Because we work closely with a select number of business clients that we have known for years and have monitored. We can mitigate the risk for select situations that others would perceive as high risk. In essence earning us a very lucrative return, but without the risk that typically comes with those situations.
LVRs and deal sizes
- Deal sizes of $100k up to $1M
- Security registered against lease entities, inventory or contracts.
Net returns and duration
- Interest paid monthly or in advance.
- 2 to 6 months.
- Net returns of 30 % to 60% p.a.
How to manage the risk of private credit
Getting rewarded for the risks of direct lending
Direct lending that is asset backed is one of the oldest forms of private credit. It is for this reason family offices so often invest in them, because they have security and are handsomely rewarded for any inconvenience. Below are some of the key risks you need to be aware of.
- The borrower does not repay the loan or interest. You have the ability to take possession of the asset and sell it. This typically takes 3 to 8 months and with legal costs of $30k to $50k. During this time, penalty interest is charged, and your legal costs are reimbursed from the sale.
- Property valuations. Property prices can rise or fall, and as such your LVR can increase or decrease as prices move. This is why we will only go up to 80% LVR on as is valuations, so there is a sufficient buffer for property price movements and equity for penalty interest etc. Additionally, your legal contracts should stipulate that the borrower must maintain the LVR during the corase of the loan.
- Second mortgage risk. In the event of default, the first mortgage lender (the bank) and their penalties have priority, before the interests of a second mortgage holder. We ensure your contract paperwork has the ability to identify any issues before a first mortgage lender takes possession, and allows you to replace the first mortgage lender.
What are the benefits of direct lending?
Lender on title
The main benefit of direct lending is that the investor is the funder on title. Meaning they get line of site of who the borrower is, the quality of the security, the terms of the deal and a direct claim for legal recourse if required.
Direct security
Direct lending offers the benefit of loans not being syndicated, the funder to having to share decisions about recourse with other investors, and them having full claim to the security.
Control
Full control is provided to the funder and decisions about the deal. This is ideal for professional investors who want control.
Higher net returns
Direct lending means most of the returns go the investor who is technically the funder. Firms like ours charge an origination fee, that is modest compared to most fund managers. This is especially the case when penalty interest kicks in for any default events, with the bulk of returns going to the funder.
What are the risks of direct lending?
Concentration risk
One of the main risks with direct lending is that of concentration risk. An investor / funder that is funding 100% of a deal, has a very high concentration risk in one deal. Therefore it is imperative that the investor is not putting all their funds into one deal or their entire wealth.
Counter party risk
One of key risk with private credit direct lending investments, is the risk of that the borrower, the contractually obligated party does not fulfill their obligations and commitments under the loan agreement. This can include not repaying the loan on time, not paying interest on time, taking out other loan facilities beyond what is permitted or altering the underlying physical security.
With RSC direct lending investments borrowers as part of their signed legal obligations have a number legal obligations that they are contractually bound to. To ensure these borrowers honour these agreements borrowers must provide security for the transactions they enter into.
In most cases it is a first or second mortgage over property, which the lender can then enforce against and have sold, with additionally penalties going to the lender. Secondly borrowers must provide a personal guarantee. This means any assets held in their personal name can be claimed against, in the event of non-payment. Directors also leave themselves open to being made bankrupt and being prevented from being directors in future, if they are unable to repay all funds owed to the lender.
What this means, is that RSC investor funders, have a number of paths for recourse and security, by which to enforce their rights in the events borrowers default against terms. Giving our investor funders confidence, to move ahead with transactions, whilst ensuring their principal has security.
Valuation risk, LVR, property value over time:
One of the key risks with private credit investments, in specific mortgage backed lending, is the value of the underlying property asset that is being provided as security!
Valuation
When it comes to property security, a number of things need to be considered. What is the quality of the valuer? Is the valuation based on the as is current value? What would the property be worth in a fire sale scenario? is the valuation based on the site with permit values included, and if so, is that project still feasible, as the feasibility will determine the inherit permit value.
At RSC we do our own internal valuations and speak to a number of parties to determine the fire sale value of an asset. If we are in doubt or unsure, or at the request of our funders if neither us nor them can determine the value of the asset, we will engage a third party to do a valuation.
LVR and property liquidity
The type of property will also determine the loan LVR. A loan against a residential property in a major city can afford a 80% LVR, but a residential property in a regional town centre may only attract a 60% LVR. Similarly, a commercial property may attract a 75% LVR in a metropolitan city, but a piece of land that is yet to be rezoned may only attract a 60% LVR.
The LVR has several factors that come into consideration, the main one being the liquidity of an asset! The higher its liquidity, the higher an LVR can go. The lower the liquidity of an asset, the lower the LVR must be to compensate the investor / funder for any financial inconvenience caused, so the funder can be reimbursed.
Liquidity risk of private credit investments
By their nature private credit investments are not as liquid as publicly traded corporate bonds or government debt. This means that once an investor enters a private debt transaction, it is harder for them to sell the investment to another party. Because of this inconvenience investors are rewarded with an illiquidity premium.
In the case of mortgage-backed direct lending that we do at RSC, liquidity for investors comes via one of four ways.
- The borrower refinances their debt with another party, on maturity.
- The borrower repays the loan on maturity.
- The asset is sold by the investor / funder, due to the borrower being in default.
- The investor / funder can sell the loan contract to another lender (speak to us about how this is done.)
Who manages my money with direct lending?
The role of RSC is to originate loans and to help with the loan management process. From start to finish, all funds are managed by you the investor / funder. We do not manage your money!
From when the loan is established, funds are transferred from your account to your solicitors account, who ensures all documentation is in order. Once the loan docs are signed to the satisfaction of your lawyer, and the mortgage registered. Funds are then transferred from your lawyer’s trust account to the borrowers lawyer’s trust account.
In the instance where interest is paid monthly. It is either paid directly to your nominated bank account or to your solicitor’s trust account.
RSC can help with loan management administration and certain communications with the borrower. But all decisions are ultimately made by you.
