In the world of property development, financing is the lifeblood that fuels growth and underpins success. (That sounded more grandiose than I intended, but you know what I mean.) Of course, finance needs to flow but correct structure should never be underestimated.
Residual stock loans are often referred to as ‘last resort lending’, but this is an unfair wrap that is more representative of a period in time when funding was limited to a few major banks. The lending landscape now includes a broader mix of non-banks and private lenders.
Whether you need to expedite construction to capitalise on market demand, pre-sales are slower than ideal, or perhaps your strategy is to intentionally withhold sales until completion, residual stock finance may provide the short-term leverage you need to free up equity for your next site or re-investment.
Below I aim to debunk the top five misconceptions surrounding residual stock finance, specifically for property developers:
Myth 1: Residual Stock Finance is only for distressed developers
One of the most pervasive misconceptions is that residual stock finance is exclusively designed for distressed developers or those facing financial difficulties. This couldn’t be further from the truth. Residual stock finance is a flexible funding solution that caters to a wide range of scenarios, including developers looking to optimise their cash flow, accelerate project completion, or pursue new opportunities without tying up capital in unsold units. It enables developers to convert their unsold inventory into working capital, providing the freedom needed to move forward.
Myth 2: Residual Stock Finance is expensive
Another prevalent myth surrounding residual stock finance is that it is prohibitively expensive. While it is true that this financing option usually carries a higher cost, it is essential to consider the bigger picture benefits and potential returns it offers. By accessing funds tied up in unsold stock, you could take advantage of new opportunities, negotiate better terms with suppliers, or invest in marketing initiatives to drive sales. The increased liquidity and potential for growth could outweigh the associated costs.
Myth 3: Residual Stock Finance is a last resort
Residual stock finance is often seen as a last resort for developers who have exhausted all other funding options. However, it is crucial to understand that it is not a measure of desperation but, used astutely, a strategic financial tool. An experienced commercial finance broker with access to a broad panel of lenders, both bank and private lenders, will be in a better position to help you navigate a full suite of options from the get-go.
Myth 4: Residual Stock Finance is a Lengthy and Complex Process
The perception that accessing residual stock finance involves a lengthy and complex application process can deter developers from considering this option. Commercial finance brokers with a proven track record in residual stock finance can assist developers to establish whether the option is viable, provide an outline of timeframes, compare lender offerings, navigate the application process and ensure a smooth settlement.
Myth 5: Residual Stock Finance is Only Suitable for Large-Scale Developers
Residual stock finance is a solution that can accommodate projects of varying sizes. Whether it’s a large-scale development or a smaller-scale project, you can leverage residual stock finance to optimise their financial position and capitalise on market opportunities, regardless of the project’s magnitude.
Used correctly, residual stock finance can be a powerful financial tool that provides property developers with increased liquidity, improved cash flow, and the flexibility needed to seize new opportunities.
Of course, for more specific information on residual stock loans or development funding options for your situation, please get in touch.
The information provided in this article is on the understanding that it is for illustrative and discussion purposes only. Whilst all care and attention is taken in its preparation any party seeking to rely on its content or otherwise should make their own enquiries and research to ensure its relevance to your specific personal and business requirements and circumstances.
Green Finance Group Pty Ltd ACN 145 035 221 is authorised under Loan Market Pty Ltd Australian Credit Licence 390222
THE FINEPRINT: The information provided on this site is on the understanding that it is for illustrative and discussion purposes only. While all care and attention are taken in its preparation any party seeking to rely on its content or otherwise should make their own enquiries and research to ensure its relevance to your specific personal and business requirements and circumstances.
Green Finance Group Pty Ltd ACN 145 035 221 is authorised under LMG Broker Services Pty Ltd ACN 632 405 504 Australian Credit Licence 517192.
“Over my decade long career in finance I have developed an in depth understanding of the debt landscape from banks to private credit funds.”
BCom – Finance (UQ)
Fortitude Valley, Brisbane
One of Australia's most in-demand commercial finance brokers and Commercial Broker of the Year Finalist 2023 (Loan Market Group), James specialises in commercial property investment and development finance.
Prior to joining the Green Team, I occupied management roles at Australia's largest commercial bank – National Australia Bank (NAB). I have broad experience in business, corporate, equipment and property debt and thrive on complex transactions.