Type of Client: Self-Employed Business Owner, Multi-businesses
Type of Loan: Commercial Property Loan
Success Factors
Establishing servicing by presenting a trading history of 4 consecutive years of highly profitable results.
It was important to know the exact repayments and purpose of each of the client’s many short-term loans.
Detailed accountants’ letters to explain non-cash movements, profit & loss statement anomalies and “close off” loss making entities.
Not taking no for an answer. We called the bank’s NSW State Manager post-boxing day to push the deal across the line.
Taking every advantage you can get. Our client was a professional accountant and we used that to its full potential.
Focusing on overall WACC. Higher interest rates are acceptable on a portion of lending if it gets the deal done. This method of business funding is known as “credit stacking”.
Situation
Our client is the owner of multiple Anytime Fitness franchises in NSW. His top performing gym was ranked among the top 20 across the Anytime Fitness network in the country. An opportunity arose for our client to purchase the warehouse premises of this gym at $2.3M.
Challenges
At the time of purchasing the commercial property premises, our client only had sufficient funds for a 10% deposit (i.e. $230K).
The valuation came substantially lower, at $2.0M, which immediately created a large funding gap to complete the transaction.
At 65% LVR, our client could have achieved only $1.3M in financing. The funding gap was at least $770K plus transaction costs.
The contract of sale was signed leading up to the busy Christmas period, with settlement scheduled on 10 January, when it is a typically quiet period at the banks.
Our client was a director across multiple entities structured to hold his investments, and which he wholly or partially held ownership.
Although overall his investments were profitable, not all of these entities were profitable.
Result
This scenario again showcases the depth of our technical capability and the high level of service provided to our private clients who are motivated business owners.
First things first, we assessed ALL of our client’s entities and their financials to determine which were profitable. We then identified the “core” businesses, and when viewing these together, trading performance was evidently robust.
With access to the equity held in the client’s two residential properties (home and investment), he was able to achieve a 65% LVR via cross-collateralisation.
Because our client was a qualified chartered accountant, owning 2 accounting businesses, he could borrow at 90% LVR against his residential properties, offering a further $350K in funding.
Our client’s professional status as an accountant also allowed him to access unsecured lending with a different lender to address the valuation shortfall.
Applying a business funding method known as “credit stacking”, where loans, including the unsecured lending, of differing terms and interest rates are taken out, we were able to get the deal across the line.
Our client was willing to take out higher rates on a portion of lending, where the overall WACC was acceptable.
As a form of security over the assets of the main business, our client entered into a General Security Agreement (GSA) with the bank. Settlement took place as planned and our client was a proud owner of both a top performing gym and premises in which it operates.
