Changes in the lending and banking environment have had a significant impact on businesses in the building industry.  This gives rise to some common issues now faced and reasons to use a specialist lending organisation, such as Master Builders Financial Services.  These issues include:

  • Developers paying significantly more for loans they can get cheaper via other banks or lending institutions.
  • Builders and developers providing more properties as security for loans than is necessary.
  • Borrowers effectively giving control of their businesses and companies to the banks by providing fixed or floating charges in exchange for a loan unnecessarily.
  • Most pre-approved clients having their purchases significantly impaired due to the lending reduction of most banks, resulting in purchases failing to settle and cash flow issues for the developer.
  • Valuations for some high and medium density projects failing to ‘stack up’ due to certain banks limiting the extent or percentage of apartments they would like to take on.

Tips and pitfalls for members:

  • Obtaining finance
    • Common issues may include:
      • A bank’s appetite for construction varies depending on the performance of previous developments with that particular bank.
      • Banks’ policies may fluctuate from month to month depending on their revenue and construction targets. This is akin to a ‘tap on, and tap off’ approach to lending.
      • Banks may consider licensed builders doing their own projects as owner-builders, making lending prohibitive, or classify them as developers when they have surplus funds, making borrowing easier.
      • Selling properties or apartments off the plan to pre-approved customers could result in the finance falling through under the current lending changes.
      • Banks giving self-employed clients very expensive finance options instead of significantly cheaper ones they may be eligible to.
      • The individual who helps you at your bank may not be very experienced—and perhaps even less experienced with the building industry– resulting in sub-standard advice or allocation of a wrong loan product.

 

  • Benefits of using MBFS:
    • MBFS knows which banks and lenders have an appetite in any given month for dual occupancies, builder / owners, developers and the self-employed.
    • Provides prospective purchasers of your projects with a good chance of obtaining finance.
    • MBFS is very often able to organise loans significantly cheaper than if customers went direct to the bank, by pairing the needs of the customer with the loans of the bank.
    • Products exist with some lenders which are extremely beneficial to the self-employed, but not commonly known (Example: a home loan that allows business splits so you can run your business at near-home loan rates.)
    • MBFS can establish whether cheaper lines of credit can be used by clients instead of the more expensive overdraft options.
    • Your needs and benefit are treated as equally important as your receiving the appropriate loan from an appropriate lender; many banks focus instead on increasing the return of shareholders.
    • MBFS has been assisting Master Builder members for more than ten years and specialises in providing finance for tradies, builders and developers.

 

  • Use experts to advise you – don’t get cross-sold!
    • There is a push by accountants, lawyers and financial advisors to cross-sell to clients by doing their accounting work and then also providing their lending requirements. You should consider whether this is the right option for you because:
      • The advice should come only from someone with expertise (i.e. accountant gives accounting advice, tax advisor gives tax advice and a credit advisor gives credit advice.)
      • You should have comfort that there is no conflict of interest among your advisors so your advice is to your benefit. If your loans are done by Master Builders Financial Services, your accountant can act as a safety net as to the loans and structure you obtain.

We hope this information is of assistance. Please do not hesitate to call the Financial Services team at Master Builders on (03) 9411 4555.

Harry Pontikis – Director

Disclaimer: Information provided in this article is general in nature and not specific as your situation has not been taken into consideration. For specific advice tailored to your situation, call 1300 137 539.