Login
ISCOVER
Oak Capital founder and chief executive Stephen Mitchell unpacks his top tips for writing a loan with the private lender.
Q. What do you offer brokers and their clients?
If you’re a broker coming to us, you’ll have an SME borrower who is generally in need of capital relatively quickly. Most of our deals are 12-month transactions, though we can do anything from one month to generally 24 months.
We fund our loans via two different mortgage funds that we operate. Our underlying mortgage product is interest-only and relatively short-term.
We’re relatively conservative when it comes to LVRs (loan-to-value ratios) (we’ll look at the odd deal at 70 per cent if the loan is not too large), where we stand out is really speed to market, especially for a client who has an opportunity to take advantage of in their business and needs the credit or a client who has some complexities in their business structure, etc that other lenders are not able to understand and work with. That’s probably where we make our big difference and where we can come in and stand alone in understanding their corporate structures, their situation, and work closely with the broker to ensure a positive solution can be provided quickly.
It’s about understanding the deal and seeing if it’s a deal that we want to partake in and giving that answer really quickly. If we can’t, we will say no straight away so we’re not wasting anyone’s time.
Transparency is key with us, with our product, and we tell everyone upfront what the rate is and what the fees are and the client can choose to move ahead or not.
Q. Can you provide an example of a solution that you’ve provided to a broker and their client recently that has really helped save the day?
We settled one a few months ago that was very complex. The client had a large trading business, turning over about $20 million a year, but they had some complexities going on with the Tax Office (which is now wanting to recoup the tax that was paused over COVID-19).
The client was working with their broker and accountant to try and sort out the ATO debt that meant that, straight away, they [couldn’t use] a bank. This client was bankable, had large banking facilities, and was well asset-backed. We were able to look at a transaction that made sense for the borrower in order to deal with that ATO debt at hand and we were able to turn it around within a short period of time. All up it took approximately two weeks because there were a number of properties that had to be valued and their structure was complex. We were comfortable with the security position, we were comfortable with the underlying client, with their turnover, and their exit strategy, which is critical to a private lender.
So, we were able to do that deal and get that client the result they wanted. The broker was very satisfied with the outcome and the client was able to continue on with their business and do what they needed to do to eventually go back to the first-tier bank.
Q. What are your top tips for brokers writing a private loan?
Use a trusted lender. If you are a broker starting out in this space and wanting to get into dealing with private lenders, build relationships, know who the right ones are, and use the good reputable operators. Take the time to have a coffee with BDMs or the lenders and get to know and understand them. It is a people industry.
Be truthful. Private lenders can accept most issues with a business’s cash flow or if something is going on with their business. But if a broker tries to cover it up and paint a picture that’s prettier than what it’s going to turn out to be, it then starts to make the lender question the whole transaction and whether or not they want to be involved.
Understand the true price. Headline rates can be your biggest trap, so look at the rate, look at the establishments, look at the exit costs, look at the minimum terms, and look at even the monthly costs. Some lenders have large monthly costs and that’s their model, but you’ve got to look at that on an annual basis because you can’t compare apples with oranges. So, it is about delving into the whole structure of the proposed loan and then being comfortable that you want to move ahead and place a deal with that lender.
Stephen Mitchell
Founder and CEO
Oak Capital
JOIN THE DISCUSSION