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Tuesday Oct 13, 2020

2020 'the year of the finance broker'

2020 must be the year of the finance broker says independent lending specialist 

Never before has the role of the finance broker been more necessary to the South African economy. In the wake of continued economic tightening, some investors are now looking for ways to make the most of the opportunities presenting themselves. The good news is, that with some innovative thinking and a willingness to explore opportunities, both financial and property brokers can help secure access to some new financial products their clients will need to get ahead.  

"The companies that were performing before the lockdown are, in many cases, doing even better as we ease into level 1. The problem is that companies who were struggling in the already poor, pre-pandemic economy are really battling now. This performance gap is set to widen as banks and other traditional lenders tighten lending criteria and owners struggle to access the finance they need to continue operations - or, in some instances, additional capital to perform a necessary pivot in order to survive," says Gary Palmer, CEO of Paragon Lending Solutions. 

The company has been working with its extensive network to address some of the challenges of Covid-19, creating new offerings to help ensure deals can still be closed. 

Delays causing cash crunch 

"One sad reality at the height of the pandemic was how hard the deeds offices were hit. Just one Covid case could shut down an office for weeks and the backlogs put real strain on the entire property industry. Sellers are really struggling with timing issues, especially if they need access to funds fast. We have devised bridging finance that we can turnaround in 48 hours or less giving business owners fast access to cash," Palmer explains. 

According to Palmer, many sellers face challenges, especially if they need access to finance for other investments or even living expenses. In other instances, business owners need to sell their properties to meet their working capital requirements, but don't want to take the lowest offer and lose money on an investment property. In these cases, an advance loan on first bond finance can give them the breathing space they need to market their property and get a better deal. 

Banks increase presale requirements

Property developers have taken an additional Covid knock with many banks now exercising the Material Adverse Effect clause and increasing the presale requirements. This has caught developers on the back foot, especially since many are dealing with delayed or cancelled sales as well as delayed building operations as a result of the lockdown. 

"After speaking with developers, we have seen that presales can cause real headaches. Just recently a developer's bank increased his presale requirements by R5 million. This meant selling an additional three units. Rather than delay construction on the next phase, Paragon guaranteed the remaining presales, allowing the developer to access the first tranche of bank funding and begin building on schedule. Delays hit many businesses very hard. The idea is to keep our developers and builders working," Palmers explains. 

Creating property partnerships 

Many businesses are asset rich but cash poor. In a depressed market, with good deals to be had, having access to cash can make a real difference. 

"Our finance broker network has sent a number of clients our way and, after hearing their requirements, we came up with a quick turnaround equity / mezzanine offering. By funding the equity and then allowing the client to buy back the equity at a later stage at a predetermined  value, we have enabled businesses to move on good deals where they're not liquid enough to contribute to the equity," says Palmer. 

Creating liquidity to keep deals flowing 

In a similar vein, Paragon has also reacted to finance brokers looking to help clients who need quick liquidity but don't want to wait on a slower than normal sale process. 

"The banks are much slower than normal with many decision makers still working from home. We have a client who is buying a R15 million primary residence and was expecting a 100% home loan. After many delays the bank took a more conservative view and came back with an 80% loan. Our client needed to move fast or lose her dream home. We leveraged another of her properties and she had the shortfall available in under 48 hours to close the deal. Again, it was her finance broker who suggested she chat to us." 

Palmer believes the real power of the finance broker partnership has yet to be realised. 

"South Africa needs to take a page out of Australia's book which has a strong finance broker ecosystem. Financial and property brokers are real assets to both individuals and businesses. With so many businesses teetering on the edge, having the support of a finance broker who knows how to access funding can make a real difference. Too many business owners are being forced into making bad decisions in haste, simply because they don't know their options. We believe this is the finance brokers' time to shine."

About Paragon Lending Solutions

Paragon Lending Solutions is an independent lender, supported by one of the big four local banks. It helps established entrepreneurs grow their assets by structuring and accessing the right financing. Clients often lack the understanding, experience and knowledge of funding structures and product options that are available for the best, quickest and most effective path to growth. Paragon uses its diverse portfolio of lending products, extensive network of funding partners, and own balance sheet to address its clients' need for property or bridge financing and working capital. Founded in 2009, it has financed deals in excess of R2 billion for a diverse portfolio of clients with varied financial requirements.

Media contacts:
Paragon, Gary Palmer: gpalmer-AT-paragonlending.co-DOT-za or 082 818 2085
Semaphore, Elzaan Rohde: elzaan-AT-semaphore.co-DOT-za or 083 256 1493

    
 

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