Finance in the spotlight: are you a hands-off business owner too?

Vicky Xi, a financing partner at Squirrel Group, has nearly ten years of experience in New Zealand banking and previously served as the New Zealand Government's Director of Cross-border Investment for Greater China.(Click to read the article)

With extensive experience in New Zealand's financial system and a thorough understanding of the financing and lending rules of major commercial banks' property divisions and finance companies, Vicky has particular expertise in development-related lending, including land purchase, development and construction loans. YIJU has teamed up with Vicky to launch the 'Finance in the spotlight' column. Through in-depth analysis of representative cases, it shares the financing insights Vicky has distilled from years of practical experience with YIJU readers, helping them apply those lessons to other situations.

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Case study

 

Local developer Mr E launched three townhouse projects in succession last year, expecting to deliver them in January and February this year. Growing increasingly confident in the second half of last year, he bought several sections at auction without loan pre-approval, with settlement due at the end of March and in April this year. Mr E's funding plan seemed ideal: receive the profits from the townhouse projects early in the year, then put them straight into the land settlements and subsequent construction. Perfect!

Then something unexpected, yet hardly surprising, happened. Another lockdown at the end of 2021, material shortages, the government's famously slow approval process and delays by electricity company Vector combined to push back the townhouse projects. The homes would now be delivered progressively from May at the earliest.

But the land settlements could not wait, and Mr E had no funds immediately available. Without the settlement money, his earlier expenditure would go to waste, including the 10% deposits paid on the land and the costs of preparing resource consent (RC) applications, with further potential trouble to follow. Complicating matters, his current developments were already highly leveraged, with loans covering more than 90% of land purchase and construction costs. He also had no other properties to offer as security and could not raise funds through a loan top-up or refinancing.

In the difficult lending environment at the start of the year, it looked as though he would be unable to settle on the land he had bought at auction—

 

Professional advice

 

In fact, Mr E was neither frantically worried nor helplessly waiting for disaster, as readers might imagine. He was calm and confident, with a strategy already in place. This hands-off owner had not truly abandoned responsibility. His years in business had taught him to trust professional expertise and leave specialist work to specialists, achieving major results through modest spending and a smart approach.

As it turned out, after every 'impulse purchase', Mr E's trusted financing chief, Vicky Xi, found him a funding solution. This amply demonstrated that choosing Vicky allowed him to rest easy. By now, the answer to the question at the start of this article should be clear: stay hands-off.

Mr E and Vicky are longstanding partners who know each other well. Vicky is thoroughly familiar with his working style, company strategy and the progress of every project. So when she learnt of the company's cash-flow problem, she immediately analysed the situation and devised a tailored solution:

The bridging loan Mr E needed was relatively short-term, highly leveraged and unsupported by any other fixed-asset security. In the current tight lending market, most lenders had no interest in it. Even if he managed to secure approval, he would still need to raise a substantial sum himself. He had bought the sections at high prices, and their independent valuations at settlement were below the purchase prices. Generally, buyers must cover that shortfall themselves, as lenders advance only a proportion of the independent valuation.

Fortunately, Mr E's financing chief delivered. After carefully reviewing the loan structure and application package, Vicky decided to combine Squirrel's own Squirrel Money small, low-interest loans with a high-leverage product. She successfully secured lending of 90% of the final sale and purchase price, allowing Mr E to settle without contributing any further funds beyond the 10% deposits he had already paid.

'Our longstanding relationship has built complete mutual trust. That gives me a comprehensive understanding of all the company's projects, staffing structure, current strategy and challenges. It also gives me the confidence to speak openly, explore every possibility for this developer and work hard to secure the best possible outcome.' Through her professional expertise, Vicky Xi fulfilled Mr E's expectations and repaid his trust.

 

Mr E is certainly fortunate to have Vicky's support.

 

Tip: Squirrel Money Small, low-interest construction loans

Product advantages:

- Very low interest: floating rates from 6.25% p.a.

- Flexible repayment: no early repayment penalties

- Simple requirements: no pre-sales or QS requirements

- Fast responses: every enquiry answered and every matter followed through

- Stability: a local business with 13 years of experience, offering a patient, dependable partnership

 

Suitable for:

- Developers seeking to minimise the cost of settling on and briefly holding land awaiting development

- Joint venture development partners who do not want to use their individual bank borrowing limits

- Small and medium-sized developments with most project funding already secured, a small funding gap of less than NZ$2,000,000, and a need for prompt drawdown

 

High-leverage financing packages are available for specific projects and applicants

Please get in touch to discuss the details