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ISCOVER
In this new section of the magazine, we take a look at how a mortgage manager and broker worked together to set a loan for a commercial client. In the first chapter of The Broker’s Deal Book, Annie Kane reveals how Resicom and Con Provataris, a broker at In Front Australian Business Solutions, helped a distressed client get out of trouble.
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Scenario
A mum and dad business operating in a tourist resort in Western Australia had seen its cash flow hit after a spate of bad weather severely reduced its takings. This led to them defaulting on their mortgage repayments at their bank, one of the big four.
When their bank competed its annual review of their financial arrangements, they were not happy with their financial situation, and pushed hard for the clients to leave.
It was after the clients were notified about the bank’s intent to serve for possession of their long-term home in Perth, that the couple contacted their accountant for help, who in turn reached out to Con Provataris at In Front Australian Business Solutions.
The broker angle
“This deal came to me through an accountant that I have a referral relationship with,” Mr Provataris says. “The accountant called me and asked if I could have a look at this situation with a business that had been running for a long-time.
“Given that it was a tourist-based business, it had very lumpy cash flow. So, Brought to you by they would make all their money within a three-month period and then it would dry up. But, last year was very wet for that area and in the period where they weren’t making a lot of money, they couldn’t actually service the loan they had with their bank on their house, here in Perth. They were probably two weeks from being sold up.”
After meeting with the accountant and the clients, Mr Provataris knew that he had to work very quickly to get the clients out of their sticky situation to save their home: “We came up with a strategy that involved refinancing them out of the bank and I knew that Resicom are specialists in this area. The reason why I use Resicom is because they have just one application form for both the second-tier market just outside the banks, or — if it doesn’t meet the criteria of the mid-tier market (like this deal) — they have private funds as well.”
He adds: “I don’t have to spend hours on the phone researching how to get the loan set, I can just get all the information, send it through and they are pretty quick at coming back and saying yes or no to the loan, and what the terms are to go forward. It normally takes around 24 hours. And, the good thing is they are pretty upfront about it on the odd occasion where they can’t do a loan, so there’s no dragging of the chain. If they can do it but need more information, they tell the terms to take back to the clients or accountant and then you can progress.
“So, it saves a hell of a lot of time,” Mr Provataris says, “and time is of the essence.”
As well as arranging the loan with Resicom, the broker also touched base with the bank to inform them that a solution was being worked on.
The solution
Stephen Mitchell, CEO of Resicom, says he remembered the deal well: “The client was on default costs and was about to be served for possession of home… Knowing the clients didn’t want to have to sell, it was important that Resicom provided a solution that meant they could get out of the bank but ultimately end up on near-normal pricing in the near- to medium-term.”
Mr Mitchell says that the solution came in a two-pronged attack: “Given the arrears and default position of the major bank, Resicom couldn’t fund a loan via the cheaper, second tier market, so we refinanced their mortgage to a private funder for a short period, in order to allow the clients to retain their home.”
A loan of around $1 million, with a 70 per cent LVR went to the private lender, which was settled within five business days and without a valuation. This enabled the clients to pay out their bank and take out some cash to “prop up their business and get to that next level”.
“The private funder wrote a first and second mortgage for the clients to meet the debt amount and provide some further business cash flow,” Mr Mitchell explains. “The loan term was for three months, and although the interest rate was high, the clients had sufficient cash flow to meet the payments over the short period – thus creating payment history,” Mr Mitchell says.
After three months of “perfect payment history” to the private funder, Resicom and Mr Provataris continued to work with the clients to make sure they got out of the private lending option as planned.
Resicom was then able to refinance the private loan to one of its mortgage managed, non-bank funding lines. A long-term low doc loan was approved at similar rates to their original business banking facilities and without this requirement for annual reviews, the company CEO says.
“The clients were ecstatic with the result, as they had saved their home and had some breathing space… Our solution to the client allowed them to regroup, retain their home and keep their business operating,” Mr Mitchell says.
“It’s fair to say the clients are ongoing clients of the broker and Resicom, and never want to go back to a bank facility. So, it’s a win-win for all involved.”
Mr Provataris agrees, saying: “The deal started off as a short-term fix to get them out of the bank, but it ended up having a few advantages: it meant they didn’t lose the home that they owned for many, many years; it gave them breathing space where they didn’t have the bank bearing down on them; and it allowed the cash flow of the business to kick back in.
“The solution provided by Resicom meant that mum and dad didn’t lose their family home here in Perth and gave the accountant time to put processes in place so the clients’ cash flow wasn’t as lumpy moving forward [by taking up some off-season, short-term contract work].
“Overall, the experience for all, was very good,” Mr Provataris concludes.
