Guideline to Request Funding From a Secondary Lender

This guide addresses common misconceptions held by Elite Mentoring Students regarding funding expectations. Many students mistakenly believe we are lenders and are obligated to provide funds because their projects were vetted by coaches, forgetting we are also students looking for our own projects. Such assumptions lead to time wastage and frustration.

Additionally, many students fail to acknowledge that we have unlocked the equity from our company shareholders’ personal property portfolios to fund our own property purchases. This equity comes at a significant cost—9%—and is not a limitless resource and is the result of 20 years of our blood, sweat and tears literally, having nearly lost everything in the 2008 GFC, 2009 mining bust and 2014 mining bust and we are nearing retirement age and our home is at risk. In some cases, borrowers have even demanded that we release funds to them as if we were their personal ATM or pot of gold without even having the loan agreement in place.

To prevent misunderstandings, this guide outlines essential requirements and considerations for securing funding from subordinate lenders, especially for property business projects such as:

  • Renovations
  • Subdivisions
  • Knockdown rebuilds
  • Developments (or combinations of these projects)

Given the heightened risk involved with new student’s projects with little to no experience in the property business—borrowers must meet specific criteria to enhance their approval prospects and pay a $500 review fee, refundable if we do not provide any funding.

This guide outlines the requirements for securing funding from a secondary lender specifically for property business projects, focusing on the type of security offered, deal structuring, negotiation points, and the legal and financial considerations that protect both parties.

If you already have a Secondary Lender and are looking for a Subordinate Lender, or you have no real security other than the project property, or we are already your Secondary Lender and you are requesting further funds for renovations, administrative fees, etc, your request will be reviewed as if we were a Subordinate Lender. Please refer to the Guideline to Request Funding From a Subordinate Lender for further information.

About Us:

We are property entrepreneurs. Follow the following links to find out more:

Our Lending Approach:

We are not in the business of lending money, but do lend to Elite Mentoring students is a collaborative, win-win approach, where we are able to learn from the projects we have leant money to.

Our lending approach focuses on strategic investments with strong returns, even when they involve some risk because Linda is a specialist in problem solving and crisis management, bringing a diverse background in property, engineering, and business consultancy to the project. We prioritise projects where there is a mutual benefit for both parties, and where our expertise can add value rather than simply lending at high rates. Our goal is to make substantial returns while still contributing to the growth of others’ projects. Due to the nature of the available funds being borrowed money, the company policy is to have funds invested into a minimum of 3 projects with a cash reserve, with maturity dates of loans to be staggered. To help stay aligned with the company’s business objectives to acquire, uplift and resell property for a profit, we offer short-term funding, such as settlement funding, for qualified borrowers, so our funds will become available for our own projects. Typically, this funding lasts between one and two months, giving borrowers the time to secure alternative investors with longer terms, ensuring flexibility while maintaining a positive contribution to promising ventures.

Our preference is for short-term lending, focusing on projects that require settlement funding or other short-term capital. These loans help us stay aligned with our business objectives and allow us to engage in profitable, low-risk opportunities.

We prefer to be a primary lender first, followed by being a secondary lender when viable and open to explore being a money partner, as a secondary lender specifically for property business projects, including renovations, subdivisions, knockdown rebuilds, developments, or a combination thereof, we evaluate potential funding opportunities based on several key factors that help mitigate risk and ensure the success of the investment.

Considerations

1. What Security Is Being Offered?

When evaluating a loan application, the type of security offered is one of the most important factors in determining the risk and potential return. We require clear and reliable forms of security to ensure our investment is protected. Some common forms include:

Second Mortgage: As a secondary lender, we typically secure our loan with a second mortgage. This means our claim on the property is subordinate to the first mortgage, and we would only be paid after the first lender in the event of a foreclosure. Because of this risk, we require a higher interest rate or additional security to mitigate potential losses.

Caveat (Notice on Property): A caveat on the property provides us with formal notice of the claim on the property. This ensures that we have a legal right to the property if the borrower defaults, offering an added layer of protection.

Personal Guarantee: We may require a personal guarantee from the developer or a third party. This ensures that in case of default, we can seek repayment from the individual’s personal assets, offering additional security for the loan.

POA (Power of Attorney) as Security: In some cases, we may request a Limited Power of Attorney (POA) as part of the security. This allows us to make decisions on behalf of the borrower, such as selling property or taking other necessary actions, should the project encounter financial difficulties or unexpected unavailability.

2. How is the Deal Structured?

The way a deal is structured is vital to both parties’ success. To ensure a fair and manageable investment, we look for the following key elements in the deal:

Alignment of Interests: We need to see that the developer’s goals align with our interests as the secondary lender. A strong and clear business plan demonstrating how the project will generate value ensures that our financial objectives are met.

Clear Terms: Clear and well-defined terms are essential to ensure mutual understanding. We look for a detailed breakdown of the repayment schedule, interest rates, and the steps to be taken in the event of project delays or financial difficulties.

Flexibility: While clarity is key, flexibility is equally important. We are open to negotiating terms that can be adjusted to meet both parties’ needs. However, we expect the developer to understand their limits and be open to finding solutions that protect our investment.

3. Flexibility

It’s important that we understand the borrower’s financial situation and know the minimum they can accept. This transparency helps in structuring a deal that is fair to both parties.

Focus on Project Value: While we always consider interest rates and loan terms, we also focus heavily on the long-term value of the project. A strong business model, backed by a realistic budget and timeline, shows us that the project will be profitable and our investment will be protected.

4. Legal and Financial Considerations

To safeguard our investment and ensure compliance with all regulations, we require clear legal and financial documentation. The following points are crucial:

Always Use a Legal Agreement: We require formal, legal agreements to ensure all terms are binding. This includes loan agreements, mortgage contracts, and any other relevant documentation that outlines the full terms of the deal.

Get Professional Advice: We encourage all borrowers to seek professional legal and financial advice. This not only ensures that the agreement is fair but also helps identify any potential risks that may not have been initially apparent.

Clarity in the Agreement: All agreements must be clearly defined to avoid any misunderstandings. Ambiguity in the terms can lead to costly disputes, so it is essential that every detail, from interest rates to penalties for non-payment, is explicitly outlined.

Summary of Secondary Lender Requirements

While the scrutiny for secondary lending is less rigorous than for subordinate lending, borrowers must still provide clear and organised documentation to demonstrate their ability to manage the project effectively.

1. Financial Position & Security Considerations

  • Borrowers must outline the security offered for the loan, such as a second mortgage or a caveat over real property.
  • If there is no real property security, the borrower must present a viable financial position that reassures the lender of repayment ability as per the guideline to request funding from a subordinate lender.

2. Loan Structure & Exit Strategy

  • A clear breakdown of how the funds will be allocated, including land acquisition, construction, professional fees, etc.
  • A defined exit strategy, detailing how and when the lender will be repaid (e.g., refinance, property sale, or profits from the project).

3. Transparency & Financial Accountability

  • Borrowers must provide:
    • Bank statements (business and personal) for a relevant period.
    • Liabilities & obligations (outstanding debts, existing mortgages, and other financial commitments).
    • Project costs & funding gap analysis, explaining how remaining costs will be covered.
    • Proof of income (e.g., tax returns for full-time workers and business financials for self-employed borrowers).

4. Property Training & Experience

  • If you have any specialised property training or are currently engaged in any property education programs, please include details of your training background.
  • If you have completed or are undergoing the same training as the lender, ensure you provide all documentation and project plans that are recommended in those courses.
  • Among the numerous property courses the lender has undertaken in property acquisition, property management, property renovation, and property development, the lender is currently a member of both the Property Lover’s Elite Mentoring and Business Accelerator Program.

5. Regular Progress Reporting & Lender Communication

  • Monthly progress updates must be provided, ensuring transparency and accountability.
  • Any major project changes (e.g., delays, cost overruns, or market fluctuations) must be communicated immediately.
  • If the lender requests additional information, borrowers must respond within 48 hours.

6. Renovation Funding Requirements

  • If secondary lending includes funding for renovation costs, the loan will be treated under the same requirements as a subordinate loan due to the increased risk involved.
  • Borrowers must comply with the subordinate lender guidelines, ensuring progress tracking, financial accountability, and risk mitigation.
  • Click here for a Guideline to Request Funding from a Subordinate Lender if this applies to you.

7. Documentation Requirements

  • Loan agreement detailing repayment schedule, interest rate, and security arrangements.
  • Property security documentation (if applicable).
  • Quotes & appraisals verifying project costs.
  • Insurance certificates ensuring adequate project coverage.
  • Contracts with builders, suppliers, and any key third parties.

8. Learnings from Dealings with Other Students

Several issues have arisen from past interactions with other students. Borrowers are urged to avoid the following pitfalls:

  1. Misunderstanding Company Structures:

  2. Failure to Seek Legal Advice:

    • Some students sign contracts without seeking legal advice. When in default, they blame the affiliated mortgage broker for not explaining the terms of the first mortgagee agreement. However, it is important to understand that the mortgage broker merely provides the introduction to the primary lender.
    • It is the company secretary’s responsibility to seek legal advice on all contracts before signing. Failing to do so not only places the borrower at risk but also disrespects the funds of fellow students and puts their assets under unnecessary risk. This lack of proper legal consultation is never appreciated and should be avoided.
  3. Defaults on Interest Payments:
    • One student defaulted on the first month’s interest payment just 11 days after signing the agreement. The reason given was that we did not send multiple reminders. It was definitely amateur hour. They requested funding under commercial lending, presenting a legitimate Pty Ltd company, yet couldn’t even manage their own payment schedules. This is an enormous red flag.
    • While we were initially willing to assist, we’ve come to understand that these students hadn’t paid the $25k for our assistance, but to the Elite Mentoring coaches, and were inappropriately defensive, falsely shifting blame onto us while we were attempting to help them comply. Borrowers must manage their own payment obligations responsibly. If they cannot, we cannot lend to them, as they are demonstrating they are unable to fulfil even the most basic tasks of a director.
    • Nevertheless, we went the extra mile by scheduling two reminders per month for the duration of the loan. This was because the director was argumentative and seemed incapable of completing such a simple task. It was an enormous waste of time and energy.
  4. Misrepresentation of Secured Funding:

    • Some students in a joint venture partnership, claimed they have secured renovation funding from another source when requesting settlement funding, only to request additional renovation funding from us one week into the project without providing the required documentation, agreed project scope of works with contractors/builders, budget vs. actual financials, or variance reports. They insisted these details would be provided at the end of the project.

    • Clarification of Secured vs. Unsecured Funding: Even when we provide settlement funding secured by the project property, renovation funding is unsecured and must be reviewed as per the Guidelines to Request Funding from a Subordinate Lender.

  5. Project Mismanagement:

    • A student refused to provide updated project feasibility reports despite project overruns of 65%, with no explanation. This caused significant concern and sleepless nights for all company shareholders.

  6. Failure to Provide Security:

    • The same student failed to provide the agreed-upon security of lodging a second mortgage, as well as both:
      • An irrevocable power of attorney in case of default.
      • An enduring power of attorney in case of incapacitation.

Conclusion: Our Criteria for Funding as a Secondary Lender

As a secondary lender, our primary concern is securing our investment while ensuring the borrower can successfully complete their project as we are lending you borrowed money and any default on your part could jeopardise our company shareholders’ personal property portfolio. Borrower’s will do well to acknowledge their understanding of the risk to the lender incurring an average cost of 9% on any funds disbursed. Offering the right security, structuring the deal effectively, and considering the legal and financial aspects are critical to moving forward. We seek to create mutually beneficial partnerships where both parties can thrive, but we also prioritise risk management to ensure our financial interests are protected.

If you’re a renovator or developer seeking commercial funding and are or have been a current or past member in the same property courses as us, such as the Property Lover’s Elite Mentoring Program and Cherie Barber’s Renovating for Profit, contact us today to discuss how we can help structure a deal that aligns with both your needs and our investment criteria.

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