During 2020, we’ve seen a noticeable increase in our work being refinancing, with many sizable property & business/corporate borrowers having existing debt facilities priced well over market.
“Lazy Tax” can be HUGE
On numerous occasions, clients with facilities as much as $30m have been paying as much as a whole 1% more than what we’ve been able to renegotiate for them.
Watercooler Comparisons are Meaningless
Trying to compare the interest rate on your $10m loan, to your mate’s, is a completely meaningless exercise.
Commercial lending is not like home lending – there’s no set rates.
Borrower margins are based upon a number of factors, including:
- Probability of Default = the likelihood of you being a problem client. The lower the risk of this happening, the cheaper your rate should be.
- Loss Given Default = how much money the bank might lose, if you do default. For property, this is directly linked to your LRV; for business lending, let’s just say it’s complicated. The less the bank could lose, the cheaper your rate should be.
- Competitive Tension = how badly the bank wants to have you as a customer, versus the next bank.
Because every property and business/corporate borrower will have different scores on these 3 factors, your rate is probably not comparable to your mate’s.
So how do I know if I’m paying “Lazy Tax”?
Lucky for you, because we write so many property & business/corporate debt deals AND because we were all once bankers ourselves (each of us having served the equivalent of life sentences!), we can usually tell pretty quickly whether pricing is at market or not.
But there’s only one way to play the competitive tension game.
We’ve often got our clients outstanding results by running a tender process, which we do in a very specific manner in order to get the best outcomes for our clients.
Our Free Offer
If you (or your clients) have $5m or more in commercial debt, we’ll gladly undertake an initial FREE REVIEW – a “look under the bonnet” if you will.
Just provide us with your financials for the last 2 years, along with details of your current debt structures and assets, we’ll have a brief conversation with you to get a feel for your business and strategies, then we’ll let you know whether we think you’re on a good wicket, or whether it’s time to hit your banker for 6!!
