On June 1st, 2022 Bellingham Wallace went public with its new banking advisory, non-bank lending and equity syndication proposition. A day later, on June 2nd, the first requirement for non-bank lending surfaced and on June 3rd we had a deal for settlement June 10th. Were we surprised? Not really, because based on our research there was a huge market need for the sort of non-bank lending, we wanted to do but we just didn’t expect to be doing it on Day 2!
Non-Bank Deal #1
A client we had been assisting to buy a business found the right target and made an offer which was accepted. The deal made sense to our client’s bankers, and they confirmed for term debt and working capital facilities to support the purchase as well as “equity release” funding underneath the buyer’s owner-occupied residential property.
In addition, our client was required to sell two properties to seed equity into the business balance sheet and meet the banks day one equity expectations. The two properties’ to be sold were 1. a piece of bare land and 2. a residential rental.
The main bank agreed to provide short term bridging to fund 100% of the sale price of both properties at settlement of the business purchase, provided both properties were unconditionally sold. And that’s where things came unstuck because after a month on the market and a week out from settlement only the land had sold unconditionally. Result: the business purchase deal was going to fall over.
The Bellingham Wallace solution was simply to provide funding underneath the property that was sold (the bare land) and the property that was unsold (the residential renter) to take out the incumbent main bank funder and allow the business purchase to settle. The non-bank funding provided the client another 6 months to sell the residential rental. In doing so, this approach released the equity contained in the two properties so it could flow into the business purchase transaction.
How is that Different to a Bank?
The obvious question is “why could the client’s bankers not provide that solution?” Fundamentally the answer is “Loan to Value Ratio’s (LVR’s). The bank can lend up to 50% LVR on bare land and up to 60% LVR on a residential rental. With an unconditional sale and purchase agreement on the bare land, the bank could advance higher LVR short term funding because line of sight to source of repayment was clear. But without an unconditional sale and purchase agreement on the residential rental, the bank could only advance 60% of the value and this was not sufficient for our client to release the equity required to support the business purchase.
Non-Bank Lending Flexibility
As a non-bank lender, we have flexibility around loan to value ratio’s and in this case funded 100% of the value of unconditional land sale and 90% of the value of the residential rental asset less estate agents’ commissions. The funding was provided on a fixed fee rather than an interest-bearing basis to keep arrangements simple and not impact main bank debt servicing calculations. From a security standpoint, Bellingham Wallace Capital Partners took 1st ranking mortgages over both properties.
Bellingham Wallace Capital Partners
We’ve set ourselves up to provide the smartest boutique non-bank lending in town, either via capital in the form of subordinated debt or stand-alone funding.
If businesses are looking for funding which the bank can’t provide, our expertise allows us to quickly understand and assess whether a case for non-bank funding exists. We’ll either work alongside a main bank or provide as stand-alone funding as circumstances demand.
We understand how to work with main banks to ensure that the debt servicing and security structure supports the main bank transaction. Our non-bank lending proposition also considers transactions where the borrower is asset rich but with variable cashflows or repayment profiles that make main bank funding challenging.