Demand rising for bank finance alternatives as credit tightens

The first three months of the 2017-18 financial year has seen unprecedented demand from commercial and residential property developers seeking short-term finance.

Much of the demand is coming from developers and purchasers facing onerous loan conditions from the major banks, forcing them to look for alternative finance solutions.

Many of the loans by NWC Finance have been provided literally days before property settlements and refinancing deadlines, as property players meet roadblocks at important milestones in their projects.

The demand for short-term solutions is a result of the major banks withdrawing their financial support for construction, purchase settlements, refinancing of facilities and other property transactions – often at the eleventh hour.

An NWC client recently required $27 million to finalise a construction project in western Sydney after a major bank placed a number of onerous conditions on the loan.

Meanwhile, we have just provided a $13 million loan, secured via a first mortgage, straight after our client’s application for bank finance fell over due to a number of unexpected and last-minute conditions.

Many developers simply can no longer gain finance with low and no documents, while non-banks such as NWC can step in at short notice with first-mortgage security.

There is also strong demand to help developers retain their projects as presales are falling over on settlement, especially for Chinese buyers who face their government’s crackdown on the offshore transfer of funds and capital.

One sector hardest hit by the tougher bank stance is medium-density developments, where new Australian Prudential Regulation Authority controls have been imposed on their capital adequacy and there are concerns about supposedly high-risk loans.

Short-term funding almost always saves a project and the assets of the owners and developers, who are more often than ever falling into liquidation, and lose their homes and other assets.

I expect non-bank lenders will be approached more frequently over the next year by lawyers, finance brokers, property buyers and developers as the banks further tighten their lending practices and policies. Non-banks generally have more flexibility and ability to secure finance more quickly than traditional lenders.

The tighter lending controls on traditional lenders represents a major opportunity for non-banks to fill the various niches opening on the property finance sector.

Joe Morello is the principal of NWC Finance.