Tight credit in comm. mortgage space -innovative idea for funding comm.owner occupied

[timlea50]

Just a thought for you guys. I see from various post there are a number of good quality brokers in the forum........

With tight credit in the Comm. Mortgage space there may be a different way of generating the deposit for the comm. property.....

Providing the owner occupier is Business to Business and has debtors and/or inventory a factoring/invoice discounting facility (with/without inventory finance) can generate a lump sum on day 1 of the facility commencing (up to 90% of an outstanding debtor book and notionally up to 60% of inventory). Providing we can show the incoming factoring lenders that the working capital position is not being undermined (usually by showing that only a portion of the lump sum is being used) then the factors can help to fund the deposit...

Here's a quick example

Lets say client debtor book stands at $1.5m
Inventory at $1m

debtor book * 90% - $1.35m
Inventory * 60% - $0.6m

Total facility = $1.95m (please note this represents maximum facility available - with different industries having different "quirks" to reduce it from there)

If commercial freehold was say $2.5m - as professional comm. mortgage brokers you can get 70% comfortably - maybe even 80% (we only focus upon cashflow finance - so don't look at commercial mortgages). Lets say 70% is made available there is a need for $750k deposit. From the factoring facility on day 1 (as per above) = $1.95m - there is still a facility of $1.2m left after the deposit........(Even if this facility were $1.5m - it leaves $750k of additional cashlfow for the client company.)

Whilst the Factoring facility MAY affect interest coverage ratio, and potentially gearing - if the cash position works arguments can be made to lenders all round.......Just some thoughts to get the grey matter working.

Regards

Tim Lea
http://www.cashstream.com.au
[email protected]
Specialist Commercial Finance Brokers for Working capital

 

[Bill.L]

Hi all,

Before a moderator jumps in and deletes this thread as self promotion, just thought I would ask Tim about his investment experiences in commercial property, not about his financing of such.

What type of investment experience can you add to this forum Tim??

bye

 

[eggnog]

ummm, could you also explain it in laymans terms. thanks

 

[timlea50]

Hi all,

Before a moderator jumps in and deletes this thread as self promotion, just thought I would ask Tim about his investment experiences in commercial property, not about his financing of such.

What type of investment experience can you add to this forum Tim??

bye

Hi Bill,

Thx for the observations. Firstly, my intentions were not intended to be spam but to be more educational, with my observations linking directly to the introduction to the innovative techniques forum which looks at :

"Discussion on innovative property related money making and financing techniques ................and other "non-traditional" techniques."

Do I invest in property personally - I have done (in a limited way)- am I right now - to be honest no - I am keeping my cash dry as the economic factors affecting the underlying property and investment markets make me feel unduly uncomfortable. It is almost a re-run of 1989 fro me in the UK - and with this quarter potentially set to be a disaster (I have written an article on the 10 key catalysts driving the Aussie Economy lower - and leading to very high levels of insolvencies - but won't reference it in this response).

I focus upon the working capital financing of businesses and have seen a rapid degredation in the availability of credit - since August 2007 - with it only set to get worse (in my opinion) as the threat of recession looms in the near distance and the lenders tighten their credit even further. The ability to raise finance in general and the commercial mortgage space in particular - makes it increasingly harder to invest in commercial property........

If an owner occupier - i.e. a business owner - wishes to invest in their own commercial property - e.g. if they had the opportunity to acquire the premises in which they trade because an existing investor is seeking to exit, other ideas outside of the box ideas may need to be seen and used to finance the investment - using business assets to fund the business, rather than their own personal assets.

I'm not for a moment suggesting the innovative technique is right for every form of commercial property investment - clearly it is not - but in these increasingly difficult times other innovative ideas need to be explored and indeed cross-questioned. It is a technique that very few investors (or their professional advisers) have thought about - and is based on 20 years involvement within the cashflow finance marketplace - both here and overseas.

I hope it stimulates thought and discussion and if it provides assistance to even one person in their approach to owner occupation then I am pleased with my contribution.

Bill, my response has perhaps been a little verbose - so I apologise for that - but I felt I needed to not only answer your response specifically but also to explain my reasoning in further depth - and I thank you for the opportunity to explain myself rather than a straight reference to the moderator.

I take on board your comments and look forward to making increasingly valuable contributions to the forum over time.

Tim Lea
Cash Stream Financial
http://www.cashstream.com.au

 

[boomtown]

Hi Tim

Factoring can be a useful tool. But as this is a Property Investors Forum rather than a Property Owner-Occupier Forum some may suggest it is irrelevant.

Unless you are suggesting that the rents themselves should be factored. I have my doubts as I imagine the factor fee would far exceed the time value of the money. But Ill listen to what you have to say.