BRIDGE OVER TROUBLED WATER: Construction sector squeeze sees increase in private bridging loans

As rising interest rates and construction delays place property developers under increasing pressure, the private funding sector is facilitating a growing number of commercial bridging loans to give the sector a lifeline.

Bridging finance is a short-term solution for a certain type and level of debt, ranging anywhere from $500,000 up to $250 million.

Often, these loans are used by commercial and residential developers to secure sites in competitive markets where timing is of the essence.

However, in the rush to bring projects to market and capitalise on the housing boom, developers have found themselves burdened with construction and settlement delays caused by global supply issues.

And this where the private funding sector has an important role to play.

Traditional banks tighten their lending policies as interest rates rise, resulting in longer timeframes for funding decisions and decreased risk appetite.

And the cost of delayed capital, and lost construction time, can be significant.

We recently worked with a client who purchased a development site at auction.

His existing long-term lender had given him ‘the nod’ that it was okay to proceed with the acquisition, however changed their position due to cost overruns on his existing development resulting from a combination of supply issues, rising costs, and the impact of a major rain event.

Despite the significant income to be generated from the imminent completion of the existing development, his lender would not facilitate this next acquisition until it was completed.

The client was concerned about losing his deposit and the potential reputational impact of not completing the acquisition.

IBN Private was able to structure an asset-backed bridging loan that effectively gave him room to breathe until they completed and settled their project, with no need for financials or a written valuation.

Bridging loans are asset-backed, with no financials required.

They can be approved in a matter of days and enable developers to take advantage of opportunities as they arise, and better position their portfolio through the ensuing DA process.

It’s a solutions-focused approach to capitalising on market cycles at opportune times, and once the position and value of the property improves, they’re able to meet the conservative risk metrics required by the traditional banking sector and transition their funding accordingly.

For more information about our services, and solutions-focused approach, visit www.ibnprivate.com.au

By Scott Roberts