Beware of upfront fees

In my years of experience, I have come across many brokers and lenders that charge ridiculous upfront fees, promise the world and do not deliver. The standard model across the industry for private lenders is to charge legal and valuation fees that are minimal. Beware of any broker or lender who asks for an upfront, non-refundable application fee.

The finance industry is filled with dishonest so-called lenders, especially private lenders who do second mortgages and caveats.

Brokers’ clients rely on their ability to source an affordable interest rate for them. The following are the questions they should be asking:

• “Are you a genuine lender?”
• “Do your funds come off your own balance sheet? If so, what is your interest rate?”

If a broker’s client is paying any more than one per cent per month, they are not dealing with a genuine lender. Why would brokers risk losing their licence by asking their clients to pay around three and four per cent per month?

Under the NCCP guidelines, brokers are required to make sure their clients can service the loan outside the loan term parameters. I find as a lender that 75 per cent of loans will always fall out of the loan term, so when a client is charged one per cent per month – cheaper than a credit card – they will have no trouble servicing the loan outside the loan term if necessary.

To give you an example, if a client borrows $100,000 for 12 months at one per cent per month, that’s $1,000 per month, equalling $12,000 per annum.

If brokers decide to involve their client with an unscrupulous lender at a higher rate of interest – let’s say three per cent per month – this results in $36,000 per year, which may put that client in peril.

Any genuine lender who operates under responsible lending laws when assessing the application for short-term finance will assess the broker’s client’s ability to service the loan.

Brokers must make serviceability workable for every SME Australia-wide. They need to surf the web to find their client a genuine lender providing one per cent per month with up to 80 per cent LVR in second mortgages and caveat loans.

Ten years ago in the marketplace, the standard rates were three per cent per month, and even higher. It took a number of years for other genuine lenders to drop their rate to three per cent, but it happened. Now that there has been another adjustment in the market – a drop to one per cent per month – I believe only genuine lenders will follow, and this will give brokers and their clients affordable access to short-term finance.

Merrick Malouf is the principal and founder of Prime Finance, a specialised short-term lender.

Merrick has more than 15 years' experience in property and finance, particularly in development projects. This led to his understanding of the growing need for an ethical and progressive commercial lender. Merrick's fundamental understanding of the property cycle and access to investment funds led to the development of a compelling strategic plan to create a specialised short-term lender to meet this need.

Despite the growth of the business and the increased demand of administrative responsibilities, Merrick continues to maintain personal daily contact with brokers, valuers and customers.