Private lending glossary

As-is value

A valuer’s opinion of what the property is worth today, in its current condition. Used for first and second mortgage lending and as the starting point for construction and renovation facilities.

As-if-complete value (GRV)

The gross realisation value: what a project is expected to be worth once construction is finished and the stock is sold. Construction lenders set the facility against this figure, drawing down progressively as the build advances. Read more

Body corporate

A legal entity that is not a natural person — a company, an incorporated association or a corporate trustee. Credit to a body corporate sits outside the National Credit Code under section 5(1). Read more

Bridging loan

A short-term loan that covers the gap between a payment falling due and the funds that will clear it — a sale settling, a refinance completing or incoming business receipts. Arranged as a first or second mortgage.

Business Purpose Declaration (BPD)

A signed statement that the credit will be applied wholly or predominantly for business or investment purposes. Required on every loan we arrange, before drawdown. Read more

Caveat

An unregistered notice lodged on a title claiming an interest in the land. A caveat loan is secured by a caveat rather than a registered mortgage. We arrange registered mortgages only. Read more

Commitment fee

A fee charged by the funder for holding a facility open once terms are accepted. Usually payable whether or not the loan proceeds to settlement. Read more

Conditional offer

The funder’s offer to lend, subject to conditions such as a satisfactory valuation, legal review and confirmation of the borrower’s standing. Follows acceptance of indicative terms.

Corporate trustee

A Pty Ltd company acting as trustee of a trust. The company is the borrower on title and in the loan documents, with the trust’s assets as security and usually director guarantees. Read more

Development approval (DA)

Council consent for a development. A site with DA is worth more and is easier to finance than raw land because the planning risk has been removed.

Englobo land

A large parcel of land held before subdivision. Financing englobo land is a specialised first-mortgage transaction where the exit is the subdivision and sale of lots.

Exit strategy

How the loan will be repaid at the end of the term: sale of the property, refinance to a bank or another lender, or settlement of incoming funds. Every private loan is underwritten against its exit.

First mortgage

A registered mortgage that ranks first on the title. The first mortgagee is paid out ahead of all other secured creditors if the property is sold. Read more

First mortgagee consent

Written agreement from the existing first-mortgage lender to a second mortgage being registered behind it. Often the rate-limiting step on a second mortgage. Read more

General Security Agreement (GSA)

Security over all of a company’s present and future assets, registered on the Personal Property Securities Register. Commonly taken alongside a mortgage in construction lending.

Indicative terms

The funder’s initial proposal: amount, term, indicative pricing, fees and key conditions. Not a commitment to lend, but the basis for proceeding to a conditional offer.

Letter of offer

The formal offer of finance issued by the funder. Our brokerage fee becomes payable at this point, because the work of arranging the facility is substantially complete. Read more

Loan-to-value ratio (LVR)

The loan amount divided by the value of the security property, expressed as a percentage. For a second mortgage the combined LVR counts the first and second together.

Mandate

The engagement letter you sign before we start work. It sets out the scope of what we will do and the fees that apply.

Mezzanine finance

Debt that ranks behind the senior construction lender and ahead of the developer’s equity. Priced for its risk and secured by a second mortgage or a charge over the SPV. Not every deal needs it.

National Credit Code (NCC)

Schedule 1 to the National Consumer Credit Protection Act 2009. It regulates consumer credit — credit to natural persons for personal, domestic or household purposes or residential investment — and does not apply to loans to body corporates. Read more

Non-bank lender

A lender that is not an authorised deposit-taking institution: a specialist commercial lender, a mortgage fund or a private investor. Our panel is made up of non-bank lenders and private investors.

PEXA

Australia’s electronic property settlement platform. Mortgages are registered and settlement funds move through PEXA on settlement day.

Presales

Contracts to buy completed stock signed before or during construction. Banks usually require presale cover before funding a build; several of our panel lenders do not. Read more

Progressive drawdown

Releasing a construction loan in stages as work is completed, each stage certified by a quantity surveyor.

Pty Ltd

A proprietary limited company registered with ASIC. The most common borrowing entity we see.

Quantity surveyor (QS)

An independent professional who certifies the cost to complete a build and the value of work done at each drawdown claim.

Residual stock

Completed but unsold units at the end of a development. A residual stock loan refinances the construction facility against that stock while it sells down.

Second mortgage

A registered mortgage ranking behind the first mortgagee. Used to raise additional capital without disturbing a first mortgage on good terms. Read more

Section 13(3)

The anti-avoidance provision of the National Credit Code. If a business-purpose declaration is used to dress up what is really a consumer loan, the Code applies anyway. Read more

Special purpose vehicle (SPV)

A company set up to own and deliver a single project, keeping the project’s risk separate from the developer’s other assets. The usual borrower on construction finance.

Term sheet

Another name for indicative terms: the one- or two-page summary of the proposed facility that precedes formal documentation.

Tripartite deed

An agreement between the lender, the borrower and the builder that lets the lender step in and complete the build if the borrower defaults.

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