Macarthur Finance & Capital

MFAA-FullMember_reverse
  • Private Funding
  • Business Finance
  • Property Finance
  • Equipment Finance
  • Home Loans
  • Calculators
    • Borrowing Power Calculator
    • Loan Repayment Calculator
    • Stamp Duty Calculator
    • Budget Planner
    • ExtraRepaymentCalculator
    • Loan Comparison Calculator
    • Leasing Calculator
    • Savings Calculator
    • Property Selling Cost Calculator
    • Property Buying Cost Calculator
  • About
    • Contact Us
Home » Traditional Funding VS Non-Traditional Funding

Traditional Funding VS Non-Traditional Funding

Traditional Funding VS Non-Traditional Funding

Traditional Funding VS Non-Traditional Funding

Why would I take out a private or non-bank loan? I hear on a regular basis clients say to me “it is all about the rate”. Sure, the cost of debt is important when considering raising funds for a business or investment purpose or property development funding but what if you can’t raise what you are looking for through traditional means?

Banks & Non-Banks provide traditional funding. Banks are seen as the cheapest form of finance and they are, however, non-banks also provide good rates and sometimes better than the Banks. I am talking about funding which cannot be sought at a Bank rate. These lenders may lend out under an Australian Financial Services License controlled by ASIC. Investors in these funds want a higher return than what is offered by the Banks and there are varying risk profiles of assets. The higher the risk profile, generally the higher the cost of borrowing.

There is a myth when it comes to borrowing in the non-traditional sector. Particularly when the investment decision means that the overall internal rate of return from the investment is high and well exceeds the cost of debt. It is a simple calculation of the cost of capital over a period vs the return on the investment.

A good example is with a property development transaction. There has been considerable tightening by lenders as traditional funders will not accept the market risk and they will be wanting 100% of debt coverage from pre-sales, experienced developer, good equity position etc.. The developer may have a reasonable contribution upfront but not sufficient to obtain traditional debt and despite the credit worthiness of the deal, they are unable to proceed with the development as they are unable to obtain credit. What’s more is if they did obtain pre-sales this could potentially delay the start of the project which is a cost and they would also need to meet the market with selling at a lower price.

There is additional benefit from having a lower contribution towards Total Development Costs for property development funding. In doing this, the Return on Equity (ROI) would be higher as there is a lower amount contributed by the developer. Developers are starting to understand this and a higher amount contributed by debt is gold when it comes to a financial return.

Do your sums. If paying a higher rate provides a net return which is acceptable to you then the deal makes sense.

I have not had non-traditional funding before, is the process more difficult?

If you have not had non-traditional funding in the past you may be asking what is the process? Will I get what I am looking for? Does it take longer? Many non-bank funders rely on finance brokers like Macarthur Finance & Capital to introduce the loans to them. You are their client and so are we. We therefore develop strong relationships with the decision makers and have the ability to talk through a transaction. We have had a considerable amount of experience in getting the structure how it needs to be ultimately for the benefit of the client. Working with non-bank funders, we can identify how to provide flexibility so we are only providing them with what they need rather than what they want which provides comfort around future funding for other projects.

Split funding arrangements also make perfect sense as one lender is not going to have all your business and shopping around is potentially the best way to give you the flexibility you need.

Contact: Ray Slack rays@macarthurfinance.com.au
0421 334987

Traditional Funding VS Non-Traditional Funding

Why would I take out a private or non-bank loan? I hear on a regular basis clients say to me “it is all about the rate”. Sure, the cost of debt is important when considering raising funds for a business or investment purpose or property development funding but what if you can’t raise what you are … [Read More...]

RSS Entrepeneur

  • A Safer Return for In-Person Education and Childcare January 16, 2021
  • 4 Steps to Demonstrate Your Commitment to Diversity January 16, 2021
  • Rappi and Banorte launch ´RappiContigo´, a program that will allocate credits to businesses and restaurants affected by the pandemic January 16, 2021
  • 3 Ways Surviving the Pandemic Makes Us All Stronger January 16, 2021
  • WhatsApp postpones the update of the privacy policy due to the flight of users January 16, 2021
  • This Word Prediction Software Can Streamline Your Workflow and Boost Productivity January 16, 2021
  • Take the Holistic Approach to Health and Fitness With This Wellness App January 16, 2021
  • On average, Mexicans consume 1.3 liters of beer per week: INEGI January 15, 2021
  • Take These Small Steps to Stop Cyber Attacks From Creating Big Problems for You January 15, 2021
  • In 2013, this man accidentally threw his hard drive in the trash, it had 7,500 bitcoins and now offers 72 million dollars if they let him look for it January 15, 2021

New Developments

In the finance industry there are always new developments. Debt funding for Commercial … ....

About

The principal of Macarthur Finance is Ray Slack. Ray’s career has always been in finance – with … ....

Contact Us

OfficeSuite 11 / 1 Elyard Street,Narellan NSW 2567 Telephone : Australia - 0421 334 987   … ....

Copyright - Macarthur Finance & Capital