Business bridging loans when your bank pulls out before settlement

Bridging finance for a property settlement funds the purchase itself when the approved finance is delayed or withdrawn. HomeSec lends from $20,000 to $5,000,000 against property security, approves settlement files within about two business hours, and can fund the same day where the application arrives before 9am. The loan is repaid by the finance that was always coming, or by a sale.

This is a different problem from being short on the day

Two things get called a settlement problem and they need different loans. If you already own the property and the funds committed exceed the funds available, that is a shortfall, and it is covered on the shortfall page — the security is equity you already hold.

This is the other one. You are buying, your finance has been delayed or withdrawn, and without funding the settlement does not happen at all. The exposure is not a fee — it is the contract: penalty interest from the settlement date, a notice to complete, and eventually rescission and the deposit.

What we can fund, and what we cannot

We can fund the purchase of a commercial property, in a personal name or a company name, and the purchase of a residential property in a company name. We cannot fund the purchase of a residential property in a personal name: credit for that purpose is regulated consumer credit under the NCCP Act, and HomeSec lends for business and investment purposes only.

Four documents, and the clock starts

A settlement file is small on purpose. We are not assessing a business, we are assessing a transaction that already has a price, a date and a contract.

• A duplicate of the contract of sale. The settlement date and the price, from the document itself rather than from memory.
• The finance approval that has been delayed or withdrawn. So we can see what was promised and what changed. It is also the fastest way for us to understand the file.
• Photo ID for everyone going on title. Verification of identity has to happen before settlement whatever else does.
• The trust deed, if a trust is buying. Only if applicable, and only the deed — not the accounts.

With those four we can generally have a decision back within about two business hours, and where the application reaches us before 9am we can be in a position to fund that afternoon. No financial statements, no tax returns, no BAS, no cash flow records and no sworn valuation.

A person decides every loan. Every application is read by a Lending Manager and every credit decision is signed off by a person. We do not use artificial intelligence to assess, approve, decline or price a loan.

What it costs you to be late, and why that is the real comparison

• Penalty interest runs daily from the settlement date at the rate in the contract, which is typically several times a commercial rate.
• A notice to complete makes time of the essence and sets a fresh, short deadline. The vendor's costs of issuing it are generally yours.
• Rescission. If the notice expires the vendor may terminate, and the deposit is at risk — commonly 10% of the price, which is usually a multiple of what bridging the gap would have cost.
• The relationship. Harder to price and it lasts longer. Agents and vendors remember which buyers settled.

Ask your conveyancer to put the penalty interest figure and the deposit at risk on paper next to the cost of bridging. It usually settles the question in about a minute, and it is a better basis for the decision than how the interest rate sounds.

Why the bank falling over is so common at this point

Unconditional approval is not money in a trust account. Between the two sit a valuation that can come in short, a credit review that can reopen, a settlement queue that does not know your date, and a policy that can change between approval and drawdown. None of those are unusual and all of them land in the last fortnight, which is exactly when there is no time to start again.

We are not a replacement for that finance. We are the thing that lets the settlement happen while it catches up — the exit is usually the same bank finance completing a few weeks later, or the sale of another asset that was always going to fund it.

A business bridging loan, anywhere in Australia

Bridging is the general word for a loan that covers the gap between two events — here, the settlement date and the day the permanent finance or the sale money arrives. The business bridging loans page covers the whole family: bridging a sale, bridging a refinance, bridging a contract. A settlement bridging loan is the narrow and urgent case inside it, where the event being bridged is a purchase settlement that will not happen without the money.

We fund settlements almost anywhere in Australia — metro, regional and rural, with towns of 3,000 or more people as a guide and smaller populations on merit. Melbourne, Sydney, Brisbane, Perth and Adelaide files are the most common, but a settlement in a regional centre runs on the same timetable: the contract, the four documents, the conveyancer on the call, and a decision within about two business hours.

How much you can borrow towards the purchase

Take the purchase price or the property's value, whichever is lower, and multiply by 70% for a commercial property or 80% for a residential property bought in a company name. That is the ceiling on the property being bought, between $20,000 and $5,000,000. Where it does not cover the price and the deposit already paid, property you already own can be added as security — the home, the premises, an investment property — and the figures added together. Up to 80% on residential and 70% on commercial. Lower on large acreage, and LVRs may reduce on properties worth less than $800,000.

The exit is the other half of the arithmetic. A bridging loan on a purchase is repaid by the finance that was always coming, or by the sale of another asset, and we want to see that exit on paper before we settle — the bank's approval letter, or the contract on the property being sold. It is what makes this a bridging loan rather than a loan with no end.

From the call to the money

What it costs

Priced per file, on the property, the position, the amount and the exit. No rate is published, because a rate with "from" in front of it is the best file's number. How it is priced, and every fee that exists.

Reviewed by Matt Hempel, National Credit Manager