Powered by MOMENTUM MEDIA
the adviser logo
×

Warning

JUser: :_load: Unable to load user with ID: 2808
Lender

Does short-term lending mean sky-high rates?

by Andrew Littleford4 minute read
Andrew Littleford

Short-term lending has historically been associated with excessive rates.

Market tolerance for sky-high rates has been progressively reduced with the introduction of NCCP legislation and through a fundamental market shift to support professional practices and corporate business models that fulfil the demand for two primary product areas – business/ investment loans and consumer bridging finance.

Interest rates charged for short-term loans should fairly and competitively reflect the risk of the loan and the loan period. Having said that, there's no doubt that rates shouldn't be excessive. A good benchmark for short-term rates is 1-2 per cent per month for a typical loan period of one to six months.

The correct approach is to strike a balance between the risk and providing the best solution for a client's need at a competitive rate. It's important to realise that the short-term market sector provides often-crucial cash injections to enable businesses to expand and/or bypass cash flow issues. That includes paying creditors, purchasing stock, paying the ATO and GST, or providing working capital or bridging finance.

Advertisement
Advertisement

The role of client communication shouldn't be underestimated. It's all about managing client expectations from the outset. Clients need to realise that a short-term loan is just that – intended as a stop-gap measure for a limited period. Its use, customisation and real-time requirements should also be considered. A short-term loan should be viewed on its own merit and not be compared with a traditional first mortgage bank rate that reflects a standard product with a typical loan period of 20-plus years.

While short-term lending creates an alternative income stream that can be highly profitable, it's still a niche market. And like any niche market, it requires an understanding of both product and processes to maximise opportunities.

We encourage brokers to diversify into the growth market of short-term lending and realise its lucrative potential with confidence.

 

 

untitled design

JOIN THE DISCUSSION

You need to be a member to post comments. Register for free today

MORE FROM THE ADVISER

Stephen Hale ta

MFAA launches near-prime, specialist loan resource

Coined Finance for when your customer doesn’t fit the mould: A broker’s guide to near-prime and...

READ MORE
Daniel Newell Gedda

Specilalist lender LoanU rebrands to Gedda

The personal and auto loan provider LoanU, which specialises in helping Australians with impaired credit histories...

READ MORE
tech tools

CBA introduces AI technology to combat scams

New figures released by the competition watchdog this week have revealed that Australians lost more than $2 billion...

READ MORE
magazine
Read the latest issue of The Adviser magazine!
The Adviser is the number one magazine for Australia's finance and mortgage brokers. The publications delivers news, analysis, business intelligence, sales and marketing strategies, research and key target reports to an audience of professional mortgage and finance brokers
Read more