non or limited recourse lending for commercial?

Discussion in 'Commercial Property' started by FXD, 23rd May, 2019.

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  1. FXD

    FXD Well-Known Member

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    Hi experts,

    Has anyone done any real commercial deals with non/limited recourse financing?

    I am in discussion with vendor who may be willing to do vendor's term for 40% of the deal which then
    potentially enables me to qualify for a non-recourse loan. It's in the preliminary stage but I'd like to get
    some of your ideas/experience on how best structuring this one.

    I believe the commercial lenders want to be the first to register the caveat on the title, but will they
    have concern about the vendor registering a second caveat after the deal is done?

    Any best practice sharing for structuring such a deal will be greatly appreciated.

    Thanks,
    FXD
     
  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Do you mean no personal guarantee?
    There used to be one or 2 but I don't think so any more.

    What is the caveat for? Generally second legal or equitable mortgages are more common in commercial lending.
     
  3. FXD

    FXD Well-Known Member

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    Thanks Terry, yes I mean exactly that no PG.

    The 2nd caveat comes up mentioned casually by the selling agent as one of the potential
    way to structure the deal so I just want to get my heads around and therefore this post.

    As always, thanks very much for your insightful response.

    Cheers,
    FXD
     
  4. Simon Moore

    Simon Moore Residential & Commercial Mortgage Broker Business Member

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    Some of the lease doc guys don't require a personal guarantee from directors. They will take a standard mortgage over the property, not a caveat. If LVR is 60% and it has a good rental yield this could be an option.
     
  5. FXD

    FXD Well-Known Member

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    Thanks guys. My broker has given me a diff view or spin on it:

    "Loans without PG are very specialised and usually for larger transactions with large tenants."

    Not sure it's a strong signal that I should be looking for a new broker. LOL

    Rgds,
    FXD
     
  6. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Its true, see my comments above.
     
  7. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    The likes of a major company where its assets and efforts stand alone v's a small business.

    eg Officeworks v's Daves Office Supplies

    I would think you dont need a new broker but need to consider if you are chasing something that isnt available.
     
  8. Property Guts

    Property Guts Well-Known Member

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    Getting loans, is like playing a game. You need to play within the rules and know your goal.
    If you want the lowest interest rate with your loan, then you will need to provide personal guarantees as an individual, plus personal guarantees from other companies you own. Don't want to do that? Then that sends a message to the potential lender that you think you will fail. What lender wants to lend on that basis? A lender with a higher interest rate? Or none. It comes down to - do you want the lowest interest rate, or not? Are you backing yourself, or not?

    Also, this is a different issue from providing additional property security on a loan. I push back on this. If they reckon they lend at 70 to 80% LVR, then that's the ratio of security.

    40% vendor finance? Sounds fantastic, take it up regardless.