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					Bridging Loan Market Overview
We interview Merrick Malouf, Managing Director of Prime Finance about how he sees
today’s market situation.

Editor:    Merrick how do you see the current situation in the Bridging Loan Short-
           Term Loan market space?

Merrick: We’ve all seen some dramatic changes in both the finance and real estate
markets. Lenders have had to tighten credit policy while real estate market outlooks remain
soft and patchy. With the general downturn in business activity across Australia, we have
seen a significant drop in business borrowing. Not only are businesses borrowing less,
individuals are also more cautious their investment decisions.

In real terms, we have seen a fall in enquiries of more than 50 percent over the last 12
months. In addition, a higher proportion of applications are failing due to lower than expected
property values as owners adjust their market expectations. In my opinion, outlook remains
bleak with these conditions unlikely to change significantly over the next 12 months.

These conditions provide the ideal opportunity for State and Federal Governments to encourage
investment through the implementation of investment or tax incentives for both business and private
In this economic environment, investors are worried about the security of their investment
and the return available over the short term. Property has taken a severe shock and many
investors have experienced losses in the property market yet recent losses in the stock
market show that property is still a good long term investment option.

An effective tax incentive scheme would bring confidence and enthusiasm back to the investment
property market by encouraging investment in residential and commercial development. New
construction projects will bring new jobs and increased activity in both the real estate and finance

Editor:    Now we would like to know a little more about your market space. Merrick,
           could you please briefly define the market for Bridging Loans?

Merrick: A bridging loan is a type of Short Term loan. As the name suggests, a bridging
loan “bridges the gap” between loans, such as when you are selling your home and buying
another, over as long as 6 months. A bridging loan may also be used to purchase an
investment property with the loan repaid when the investment property is refinanced.

Other types of Short Term loans include business loans and construction loans. A short term
Business loan allows business owners access to the equity in their property to cover an
unexpected expense or exploit an opportunity. This interest-only facility is secured by a 1st or
2nd mortgage and interest is paid monthly. Typically the term of the loan is between 1-6
months. The loan is repaid by the proceeds of the opportunity or refinance of the security.

Construction loans fund the development of homes, duplexes, townhouses, units and
commercial or retail sites. Interest is capitalised into the loan which is secured by a 1st
mortgage over the site. Often collateral security is required. Terms are 6-18 months. The
loan is repaid when the project is completed and sold or refinanced.

Short term loans have the following features:

          Simple application process
          Fast approval (in 2 hrs)
          Quick settlement (in 5 days)
          Easy to discharge
          Use residential, commercial, retail or industrial property.
Editor:     Merrick, what makes Prime Finance different from other sources for these
            type of bridging loan funds?

Merrick: Perhaps one of the most significant differences is that we use our own funds to
lend. That means we can make a decision quickly, without the delay of a credit committee
and we’re never waiting for funds to settle your loan.

We have been involved in real estate property and lending for many years and our
experience has allowed us to avoid some of the potholes that caused some of our
competitors to stumble and fall. We perform a comprehensive due diligence program that
underpins our responsible learning policy. We love to help our customers achieve their goals.

Editor:     Can you let our readers know the common mistakes or pitfalls that brokers
            can make and should be aware of when trying to obtain bridging loans for
            their clients?

Merrick: Perhaps the most common mistake or rather omission is that the broker has not
clearly explained the use, purpose and other conditions of a short term loan. A short term
loan should only be proposed where its use will bring a net improvement in the customer’s
position, not as a source of easy finance.

Secondly, a short term loan still requires the same basic form as a home loan, i.e.
application-assessment-approval-settlement-loan management-discharge. So similar
documentation is required and where documentation is not properly completed and
executed, this can be one of the main reasons for delays in the process.

Finally, many brokers fail to help their applicant plan and prepare an effective and
reasonable “exit strategy”. The biggest problem that we see often is that the proposed exit is
the sale of the property, however in current market conditions this may not be wise and will
further devalue the current value of the security property. However if that is the exit, then, the
client will need to provide documentation confirming the engagement of an agent and the
marketing plan proposed.

Editor:     How do you see the market and interest rate movement over the next six

Merrick: I think that most of us agree that business conditions are tough at present. Things
have eased in the last month as business owners come to terms with doing business in a
new environment, however it seems likely that these conditions will persist for another 12-18
months with only slight improvements in business confidence. Interest rates are likely to rise
over the next year as consumer confidence grows. However, the effect of an interest rate rise
is likely to be diluted by increases in unemployment.

It should be noted that conditions like this offer new opportunities for the astute so it’s a good
time to remain cautious and to apply ourselves to those opportunities when they arise.

Lenders will continue to tighten credit policy or even drop products such as construction
finance. This may provide increased opportunities for lenders who are cashed up and identify
and understand the risks of this very profitable finance product.

Editor:        Thank you, Merrick

Merrick Malouf is the Managing Director of Prime Finance, a private lender that specialises in
providing Short Term loans, including bridging loans, business loans and construction loans.
Prime Finance writes hundreds of short term loans a year with funding of over $20M
available. They specialise in fast approval, quick settlement business loans.
All articles that appear in Finance Broker Online are written independently by various authors and should not be
taken as the expressed views of Finance Broker Magazine Online, or an endorsement of their products, services
or companies.

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