Lender Risk Appetite – all over the place…

Non-banks have HEAPS more risk appetite – as noted in another one of our posts, we’re regularly writing property development finance around the 70-75% LVR (on GRV, which equates to 85+% on TDC) – and we’ve written a number of deals well over 90% of TDC (which yes, means the developer is putting in less than 10%, a fair bit less where there’s also site value uplift).

Banks in Property Development –  100% debt cover on residential projects has been the norm for a long time now, but not anymore, we’ve written a few recently at 50 to 75% debt cover. Pre-commitments in other sectors (e.g. commercial/industrial) are inherently lower thanks to cheap money, as ICR hurdles (interest cover ratio) haven’t really moved for the most part. Maximum LVRs are also mostly back to historic maximum levels for banks, 75 to 80% of TDC.

Corporate/Business finance is hit & miss – we regularly have some banks have no interest in a deal whatsoever, while other banks get really excited about the same deal. It’s unfortunate to say that our frustration levels aren’t getting any better – which we know business owners out there are experiencing as well – the number of bankers [and their credit managers] that have the genuine ability to analyse the true risk and take a commercial approach, hasn’t increased, there are more “box tickers” out there than ever before. But there absolutely are still some really good bankers out there – which is something we’re very big on – we don’t just go to “the bank”, we hand-pick the best bankers for each deal as we always say “you can take the same deal to two different bankers in the same bank and get two different decisions”. The lesson to be learnt here is that if your bank is telling you that your funding request isn’t a deal, don’t take their word for it!

Non-bank lending in corporate finance continues to grow, it’s certainly still a very immature market here compared to Europe and the US, but it’s changing quickly. For borrowers seeking more than $20m, there is plenty of opportunity in between what used to be a choice between bank finance and private equity – whether that’s mezzanine debt behind a bank or a non-bank senior lender instead of a bank – leverage can be higher and/or more flexibility. This presents opportunities for acquiring other businesses, growing organically, or even just “taking some money off the table”.

Home lending – opportunities abound, but it’s still often a nightmare! We certainly don’t want to discourage you from applying for a home loan – after all, Anthony will make it as seamless as possible. The repeal of responsible lending laws (or lack thereof, the repeal that is) is its own topic (which we discuss here), but your properties have probably gone up in value by a decent amount, so renegotiated loans can produce great savings and/or release equity can allow you to make further investments.

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