Lease back loans

After input on lease back loans. For CP. Via a bank, not as in leasing back to the vendor. Has been proposed as an option due to not enough income when other rentals are excluded.

 

As in a a rolling loan facility linked to the lease term. Anyone familiar with that sort of thing?

 

Do you mean a loan which the bank requires annual reviews?

 

No, but that would probably be a requirement.

 

Sounds more high risk unless you have a long WALE.

 

Yes it would be, no guarantee of renewal on lease expiry. In my case LVR would only be 20-25%.
But riskier for sure.

 

I'm sure any of the brokers on this site could find a much less risky or costly deal @Rolf Latham @Shahin_Afarin @Jess Peletier

 

I saw one complex one. Macquarie Bank sorted it. Person won a stream of income in a lottery prize but it wasnt a upfront. Think of $20K a month for 20 years However they wanted cash up front and wanted to sell their entitlemnet. Lottery rules didnt allow upfronts other than on death. The winner wanted to sell that stream in exchange for a smaller upfront. Macquarie brokered the deal where a investor after a bond bought the lump sum borrowed by the winner. They paid a fixed sum upfront discounted for their rate of return. eg They wanted 10% lets say. So they paid $1.99M to Macquarie. Macquarie then wrote a loan of $1.85m to the winner. Macquarie keep the difference as a upfront fee. . The winner had to repay $2.4 million over time. The lottery payments went direct to the loan. Macquarie took security over the prize and winners home in the event they default. Like a reverse annuity with a present value discounted cashflow. The winner wanted no property security but that wouldnt fly. Macquarie had to ensure the monthly lottery payments occurred. The agreements allowed for it all to be unwound on death by a lump sum...Macquarie also took a fee if that occurred.

Unsure how a lender would lend against future rental income and access security for default. It sounds like a invoice financing type deal and may fall under this however only presently issued and due invoices AND those a lender accepts are governed by invoice financing. And the terms are usually 60-90 days max.

We also see a specialised loan that is for R&D projects. Usually terms are tried to ATO grants and tax benefits and the loan is drawn progressively in the year and discharged when ATO pays the tax refund. Then repeat next year etc.

? Perhaps a equity out but then repayments based on a % of income ? Lender may want to know about the use of the borrowed funds of course. eg Improvements or gambling ?

 

T

Thats interesting re the lottery thank you.
On closer inspection, what has been proposed to me is an interest only loan for the term of the lease. That I could apply to roll over on renewal of the lease.
With a focus on quality of the lease/Tennant. So to some extent the lender is doing due diligence for me.

The sticking point would be the interest rate I'm guessing.

The risk would be loss of lease which would result in the loan being called.

Short term finance really. Could be worse. Haven't seen details yet.