Breez Commercial Mortgages

DEVELOPMENT FINANCE

Gross Realisation funding (GR) is funding against the end value of the project, generally after deduction of the GST payable under the margin scheme. The lender disregards the actual cost of the development and will take a risk position against the asset.
In many cases, pre-sales are not required, which means the developer does not have to discount stock in order to achieve sales targets imposed by the lender. GR lenders may provide finance up to 80% of the end value of the product.


FACTORING

Also known as accounts receivable financing, factoring is the selling of a company’s accounts receivable, at a discount, to a ‘factor’, who then assumes the credit risk of the account debtors and receives cash as the debtors settle their accounts.

Many small and medium businesses find it difficult to manage cash flow due to debtors not paying on time. Often these are small businesses going through a rapid growth phase, producing cash flow difficulties. Factoring is often used as an alternative form of financing instead of business overdrafts.

Often, a factor takes over all the administration of debtor collections. So, along with the upfront payment, the business has its sales ledger and accounts collection managed.

Whilst factoring services come at a cost, it remains a viable alternative to the main option of business financing of an overdraft. The cost of factoring varies depending on the financial strength of the business’s clients, from whom the outstanding debts are due.

Some benefits are:

• Immediate cash – you don’t have to wait for customers to pay
  
• Reduced expense – no further resources are committed to debt recovery
  
• Improved profitability – the factor’s purchase reflects positively on the business’s Statement of Financial Position.
  
• Imposes discipline – businesses have to generate the sales before they receive the finance
  
  

MEZZANINE FUNDING

Mezzanine funding closes the gap between a developers primary or first mortgage and the total development cost. This may result in the total funding of the required equity to complete the project, the soft costs of the project and any ongoing charges during the course of construction.

The Mezzanine Funder may enter into a profit share arrangement with the developer, depending on the development risk. However, they will also consider charging a commercial interest rate of funds advanced in place of a joint venture agreement.
Mezzanine funders provide subordinated debt, so the cost of these funds are reflective of the funder’s asset position.