If you’re a commercial property investor and business owner who’s been frustrated by your bank, this story might resonate with you.
Our client had a family business and had built up quite a sizable commercial property portfolio. They’d been with their bank for many, many years. The bank decided to put them on a principal repayment program to wind their LVR back to only 55%, simply because they had become, in the bank’s eyes, a “commercial property investor” rather than a “business lending” client.
The bank’s decision to force them to reduce their LVR was not based on any change in the client’s situation. In fact, their situation had improved. Their business profitability and rents had both been increasing.
Aside from having to increase their monthly repayments, the problem was that the client wanted to focus on strategic acquisitions of MORE properties, particularly adjacent to their existing properties, which would ultimately increase the value of their existing properties by creating a larger amalgamated parcel.
With the bank’s requirements and the client’s strategy misaligned, the client asked us to investigate the appetite of other banks.
In our opinion, there was certainly an opportunity to get better credit terms, but with a caveat. The interest rates and fees with the existing bank were already very good, so we weren’t expecting to be able to get a better price.
Ultimately, another bank was willing to actually match the pricing, but most importantly, they would refinance the existing portfolio on an interest only basis, which with $10 mil or so was a $50,000 a quarter saving, and then finance 85% of the next commercial property purchase.
What this case study really proves is that, as we’ve said too many times before to count, even if you’ve been loyal to your bank for a long time, that loyalty doesn’t necessarily get rewarded by credit decisions. If they have a square hole and your peg isn’t square, too bad. But, don’t just accept that.
Banks often have very different views on different situations. A brand new bank that you have no existing relationship with might actually think your idea is absolutely great, even if your existing bank doesn’t.
If you’re frustrated by your bank not wanting to support your strategic endeavors, get in touch with us at STAC.
With our decades of experience, deep relationships with both banks and also in private credit markets, we can work out whether your goals are actually achievable.
