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PSA gives the low down on non-conforming loans.

The Low Down on Non-Conforming Loans

Securing a loan is a significant milestone for many Australians. However, traditional lenders like banks often have strict criteria that can make it challenging for some borrowers to obtain a mortgage. That’s where non-conforming loans come into play. These loans are tailored for individuals who may not meet the standard lending criteria of major lenders. In this blog, we’ll delve into the world of non-conforming loans, explaining what they are, who can apply for them, why they are used, and the pros and cons associated with them.

What is a Non-Conforming Loan?

A non-conforming commercial loan, also known as a non-standard or specialist loan, is a type of mortgage offered by private lenders to borrowers who don’t meet the stringent requirements of traditional financial institutions. These borrowers often fall into various categories, including:

  • Poor Credit History: Individuals with a history of late payments, defaults, or other credit issues can find it challenging to secure a standard loan.
  • Self-Employed: For self-employed individuals, demonstrating a stable income can be difficult, especially if they have irregular cash flows.
  • New Business Owners: Entrepreneurs who have recently started their businesses and have had an Australian Business Number (ABN) for less than 12 months may struggle to meet conventional lender requirements.
  • Debt Consolidation: Borrowers with personal loans or credit cards that have late payments or high balances may seek a non-conforming loan to consolidate their debts and improve their financial situation.
  • Mortgage Arrears: Those who have fallen behind on their mortgage payments may turn to non-conforming loans to refinance and prevent foreclosure.

Why Non-Conforming Loans Are Used

Non-conforming loans serve a vital purpose in the Australian mortgage market. They provide an avenue for borrowers with unique financial circumstances to access the funding they need, and here at PSA, they’re specifically designed for business owners. Here are some key reasons why non-conforming loans are used:

  • Access to Immediate and Urgent Funding: Non-conforming loans offer an opportunity for individuals with less-than-ideal financial histories to help keep their businesses afloat when tough times arise. They are designed to support profitable businesses that have found themselves in a tight spot, possibly due to poor financial planning, cash flow issues or unexpected costs, e.g., legal costs.
  • Flexible Eligibility: Private lenders who offer non-conforming loans often have more lenient eligibility criteria, making it possible for self-employed and new business owners to secure financing.
  • Debt Consolidation: By consolidating high-interest debts into a single mortgage, borrowers can simplify their financial obligations and potentially reduce their overall interest costs.
  • Rescuing Businesses from Foreclosure: For borrowers facing the threat of foreclosure due to mortgage arrears, non-conforming loans can provide a lifeline, helping them keep their businesses and associated assets.

The Benefits of Non-Conforming Loans

Approval for Unique Situations: Non-conforming loans cater to borrowers who don’t fit the mould of traditional lending criteria, allowing them to access mortgage financing for their business quickly.

Flexible Terms: Non-conforming loans generally offer better flexibility than standard mortgage offerings from the banks.

Debt Consolidation: The option to consolidate high-interest debts can lead to significant interest savings and simplify monthly payments.

Things to Consider Before Applying for a Non-Conforming Loan

Higher Interest Rates: Non-conforming loans typically come with higher interest rates compared to standard loans, reflecting the increased risk for the lender.

Fees and Charges: Always read the fine print and understand any fees, charges or payments outside of your standard loan repayments so you aren’t caught unaware. While many private lenders will often have a range of extra fees and charges, at PSA, we pride ourselves on charging no exit fees and lower disbursement fees than other private lenders in the market. This gives our borrowers better flexibility without the added cost.

Potential for Default: Borrowers must exercise caution to avoid defaulting on non-conforming loans, as this can result in the loss of their property. At PSA, we undertake considerable risk mitigation processes to ensure a non-conforming loan is the right decision for applicants AND for us. We want to see your business succeed and for you to make your repayments without worry, which is why we take the time to get to know you and your business to avoid the likelihood of payment defaults.

Non-conforming loans play a crucial role in the Australian business landscape by offering alternative financing solutions for individuals who don’t meet the standard lending criteria of major banks. When used wisely and conducted through a reputable private lender, these loans can help Australians achieve their financial goals and overcome challenging financial circumstances.

To discuss your eligibility or learn more about our non-conforming loans for businesses, call PSA today on (03) 9847 7689.

Author picture

PSA’s Director, Peter Marmara-Stewart, is a highly successful business owner and finance professional in Melbourne. As a certified Financial Planner with over 15 years of experience in business finance, accounting, and asset management, he provides clients with unparalleled expertise in asset protection, debt elimination and business restructuring. Call (03) 9847 7689 and see how Peter and the PSA team can help you get on the smarter path to financial returns.