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Buying commercial or investment property at auction through a company or trust is common. The risk is timing. Bank approvals for companies and trusts take longer than the 30 to 60 days most auction contracts allow, and a pre-approval is not a commitment to fund a particular property by a particular date.
What is at stake
If the buyer cannot settle, the vendor can issue a notice to complete, then terminate the contract, keep the deposit and sue for any loss on resale. On a $2 million purchase that is $200,000 before damages. Rules vary between states, so get advice from your conveyancer or solicitor as soon as a delay looks likely.
How the loan is structured
- Security. A first mortgage over the property being purchased. Where the amount needed is more than the lender will advance against that property alone, a second mortgage or caveat over another property makes up the difference.
- Amount. First mortgages on this site run up to 70% of value. With extra security, the full purchase price and costs can sometimes be funded.
- Term. Usually 3 to 12 months, long enough to complete a bank refinance.
- Interest. Often prepaid or capitalised, so there are no monthly payments while the long-term loan is arranged.
| Bank purchase loan | Private settlement loan | |
|---|---|---|
| Time to fund | 4 to 10 weeks for a company or trust | 5 to 10 business days |
| Assessment | Full financials and servicing | Security and exit |
| Term | Long | 3 to 12 months |
| Cost | Lower | Higher, for a short period |
The exit
The lender will want to know how the loan is repaid. Usually that is the bank refinance that was already under way. It helps to show where that application stands, or to have a broker confirm the property and borrower fit a mainstream lender’s policy. Sale of another asset is also an acceptable exit if there is evidence it is in train.
Before you bid
The best time to arrange this is before the auction. With terms agreed in principle, a company can bid knowing settlement is covered whether or not the bank is ready. A valuation cannot be finalised until the property is known, but the borrower, structure and extra security can all be assessed in advance.
Who this suits
Companies, trusts and developers buying for business or investment purposes. This is not finance for buying a home to live in. See bridging finance and first mortgages for the products used, and settlement bridging for other settlement shortfalls.
We match you with a funder and email you their introduction. Reply to it and they’ll be in touch.
Get matched with a funderFAQ
Can the property I am buying be the security?
Yes. The lender takes a first mortgage over it at settlement. If the purchase price exceeds the lending limit, additional security over another property can cover the gap.
How fast can this be arranged?
Indicative terms are usually available from the funder within a day of your reply. Settlement in 5 to 10 business days is realistic where a valuation can be done promptly.
Can I ask the vendor for more time?
You can ask. A vendor may agree to an extension, often with penalty interest. They are not obliged to.