While the banks may be relaxing their lending criteria in order to keep their residential mortgages ticking over, a large percentage of commercial property deals are still falling through the cracks.
This is largely because applicants struggle to access the correct person or department within the traditional institutions, slowing down or even ending the process, says independent lending specialist, Paragon Lending Solutions.
“Many of our clients looking for commercial property finance approach us after their deals have been rejected by the traditional bankers. This is not because they don’t qualify, but often because they have been assessed by the wrong department, or the deal has not been presented in the right format,” explains Wilhelm Jonker, business developer at Paragon Lending Solutions.
Jonker goes on to explain that South Africa has also not kept up with our international counterparts when it comes to capital raising in the commercial space.
“In the UK, banks will refer deals they don’t want to alternate lenders. What’s more, countries like Australia are used to working with financial brokers who work with clients and shop around looking for the best deal possible. However, South Africa does not have a very established capital raising industry and so businesses – and ultimately the economy – are losing out on investment opportunities,” he says.
One of the problems is that the large traditional lenders are siloed with little interdepartmental engagement, making it difficult to identify the correct person to speak to when looking to raise finance for a commercial property.
Jonker also believes a major contributing factor is that traditional lenders are all fighting for the attractive, large deals. An application for a R10 million bond simply does not receive the same attention as an application for R100 million. It is for this reason, he says, that working with a lending partner and making sure they can help you with all the preparations of the funding pack, as well as finding the right person, first time, is the surest way of securing finance.
“The problem is not malicious on the part of the traditional lenders. They receive thousands of applications and those which appear to fall outside their scope or appetite cannot all be pursued.”
Jonker goes on to give a recent example of Paragon’s experience when helping a client fund a commercial property in Johannesburg: “The best way to illustrate this challenge is when we took our deal to a large bank. We approached two different divisions. A private wealth banker and the commercial property finance division. We asked both to assess the deal. What we got back were two completely different offers. The pricing was different. The loan to value different was different. Even the raising fee was different.”
While Jonker acknowledges that this experience is frustrating, he says it shows a clear need for independent lending specialists, and room for a new era of cooperation within the financial ecosystem.
“Our example shows no attempt at unethical business practice. Each division was assessing the deal based on their specific metrics. We know that we are taking the right deal to the right person at the right institution. And we know what terms we should be getting. Working together we can make sure we get more deals over the finish line – which is exactly what the property market needs right now,” Jonker concludes.