Tighter Lending by Bank Equals More Private Lending
With the release of the Royal Commission Report in February this year and recent crack-downs on lending by the major banks, we are seeing more and more loans coming from private lenders and mezzanine financiers.
Lenders need to be aware of their responsibilities and the risks that they face when agreeing to lend large amounts of money to borrowers. We are seeing an increasing number of borrowers, notably under these economic conditions and uncertainty within the property market, not able to repay loan amounts and most of the time, the chances of recovering any interest is extremely low as is the provision of adequate security by borrowers.
Not only are Lenders facing a high chance of no interest being able to be repaid (especially at default rates that appear attractive at drawdown) but they will have to face court action for the purpose of recovering any amount back from borrowers. In the same light, borrowers are also encouraged to review carefully the lending requirements such as security interests being registered over borrowers for security for loan amounts.
Consideration should be given in relation to:
- How these loans affect your future lending capacity?
- How does it affect the functioning of your business moving forward in needing finance for other things?
- If a Borrower is a developer, by borrowing from a mezzanine or private lender, as security for payment, is the Lender taking control of shares or units in the Borrower?
- Does the Lender have the ability to halt progress of a staged development?
It is imperative, that security for payment documents are prepared and reviewed carefully.
For more information on what your responsibilities and risks are as a Borrower or alternatively as a Lender, please contact a member of the Commercial Law Team.
