Finance lending | Asset rich but cash poor
This ‘Ask an Expert’ column ran in the NZ Herald last week. It was in response to a question on how to borrow if you are cash poor but asset rich.
"I have recently come back from overseas and have big plans to set up my own import/export business here. I am very keen to buy a property while the market slows and have an excellent deposit of $300,000 but I can't seem to get a mortgage from any of the banks. Can you tell me if there are other ways to raise the funds are and how long term they are? I expect my company to be making a profit within the year."
At Squirrel we see one or two people a month in your situation. As you rightly point, out banks will only lend to you if you have sufficient verifiable income. However, there are still asset lenders available who do not require any proof of income. They can arrange finance within a week and will typically lend for up to a 12-month term. They are relatively expensive, so you should factor that into your decision-making. Asset lenders charge upfront fees of up to 3% and interest rates of 12% to 14%.
You will also require a registered valuation and legal costs are generally a bit higher. With an asset lender you can borrow up to 65% of a property’s value. If borrowing less than this, then the lender will often allow you to capitalise interest on to the loan. You can only access asset lenders through a mortgage broker like Squirrel and some solicitors.
We have arranged asset lending for a few immigrants who hadn’t found work yet, an entrepreneur who had just started a new business, a couple needing to recapitalise their company, and a retired couple buying a retirement home prior to selling their existing home. The most important thing with asset lending is that you must have an exit strategy before the end of the loan term. The loans are temporary by nature. The exit strategy might be selling the property, or refinancing the loan back into a bank once you have proven income. There are generally no penalty fees for repaying the loan early.