Short-term financing on the increase among SA property buyers and investors

As a result of low interest rates and an upbeat property outlook for 2013, buyers and investors are increasingly looking to take advantage of potential opportunities in the property market. However, investors and developers are at times unable to obtain the required finance quick enough to secure these deals and as a result the demand short-term lending has increased.

This is according to Gary Palmer, CEO of Paragon Lending Solutions, a short-medium term commercial lender, who says that property developers, buyers and investors are using alternative lenders as a temporary option to the banks to help secure short-term liquidity. “The current economic environment is favourable for obtaining finance for property deals while yields and cap rates remain attractive in the property investment arena.”

However, he says stricter control measures and the banks tougher lending criteria on asset-based lending have resulted in the major banks being unable to process and approve loans timeously. “In some cases property players are unable to obtain the right level of finance from commercial banks fast enough and approach short-term commercial lenders for quick liquidity.

“Non-bank lenders are no longer seen as an end resort, but as a mainstream method of facilitating transactions while a bank application is being processed. We offer the client the breathing space until the client is in a position to sell their asset or settle through the refinancing by a bank once all the bank’s criteria have been fulfilled.”

Palmer says that Paragon Lending Solutions has seen a noticeable increase in applications amongst high-net worth individuals this year. “More property buyers, as well as clients who require finance for other commercial means, are opting to apply for short-term or bridging finance in anticipation of a bank loan or transfer because of the flexible terms and the fast turnaround time, which can be approved within 36 hours and in certain circumstances pay out within 10 days of meeting a client.

He says that although these clients have strong balance sheets, they may not have quick access to finance. “Our clients prefer having the advantage of flexible repayments, being able to lend more if need be and are prepared to pay a slight premium for a quick turnaround time and quick access to funding.

“In other cases a seller might be waiting transfer of the proceeds of a sale but requires an advance for commercial or working capital until the transfer is released.”

He adds that the advantage of short-term lending is to convert equity in your property to cash. “It allows buyers, investors and business owners to take advantage of commercial opportunities, as well to negotiate better deals.”

Palmer says that high-net worth clients have properties which could be used as security, which allows for a non-bank lender to process a transaction. “There is usually an indefinite exit date for the lender as a result of long-term finance not yet being in place from the commercial bank. High-net worth clients are willing to pay a slight premium for quick turnaround time and payment flexibility,” Palmer concludes.

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