This guide addresses common misconceptions held by Elite Mentoring Students regarding funding expectations and must be read in conjuction with the Guidline to Request Funding from a Secondary Lender. 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. 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 of subordinate lending—particularly when no security beyond the project property is available—borrowers must meet specific criteria to enhance their approval prospects and pay a $500 review fee, refundable if we do not provide any funding.
When seeking funding from a subordinate lender, it is crucial to provide all necessary details to ensure a clear understanding of the risk and return associated with the loan. Unlike secondary lenders who typically hold a second mortgage, subordinate lenders may face additional risks, especially if no real property security is available. This guide outlines the key considerations and requirements when requesting funding from a subordinate lender, or funding from a Secondary Lender if you do not have security over real property other than the project property and is intended to be read in conjunction with the Guideline to Request Funding from a Secondary Lender.
If you are looking for funding from a Secondary Lender, please refer to the Guidline to Request Funding from a Secondary Lender
About Us:
We are property entrepreneurs. Follow the following links to find out more:
- About us, our lending experience and criteria
- Completed projects
- Development Expertise
- Investment Partnerships
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.
Although our preference is to be a primary lender and then a secondary lender, we have provided funds as a subordinate lender when there has been clear security over real property other than the project property including the borrower’s family home, with substantial equity—typically at least half a million dollars. The majority of our lending has utilised a hybrid loan structure, combining profit share with fixed interest, which compounds daily, with our preference for monthly payments. This approach allows us to mitigate risk while providing meaningful funding for projects that align with our lending criteria. While we generally do not consider subordinate lending without security over other real property and have never done so, we may make exceptions for borrowers who, in addition to demonstrating exceptional diligence in adhering to the guidelines outlined below, propose creative solutions to provide us peace of mind. When borrowers are this highly leveraged, they may also choose to engage us as management consultants to assist them with project management support, financial reporting assistance, compliance support and general consultation, and it will be viewed favourably if they do.
Our lending strategy focuses on achieving substantial returns while leveraging our expertise to add value to the projects we fund. Our experience in the property business allows us to find solutions when unforeseen challenges arise. We highly value collaborating with borrowers who share our commitment to professionalism, transparency, and effective project management, and who recognise the value of compensating us for our significant contribution.
Although our initial loans were twelve months in duration, due to the numerous requests for funding, we now prioritise short-term loans ranging from one month to six months in duration, to ensure our investments remain agile and aligned with our business goals. When offering subordinate loans, we prioritise projects with strong equity and security, safeguarding both borrower and lender throughout the loan term.
1. Key Considerations for Borrowers
Borrowers should be aware of the following:
- Heightened Risk Exposure: Subordinate lenders may face more risk than primary or secondary lenders, particularly if there is limited or no real property security available.
- No Automatic Approval: Lending approval is not guaranteed, even if the project has been vetted by a coach or mentor.
- Attitude and Approach: Arrogance, entitlement, or assumptions of favouritism can severely damage a borrower’s chances. Clear, respectful communication is essential.
- Peer Status: Borrowers often overlook that many lenders are also students pursuing their own projects. While there is a willingness to assist, approval depends on alignment with company policies and project criteria.
2. Security Considerations: Is There Real Property Security?
The type of security offered is a critical factor in determining the lender’s risk exposure. Subordinate lenders assess whether the borrower has security over real property and, if so, the level of available equity.
- If There Is Security Over Other Real Property
- The borrower may offer additional real estate as security, strengthening the loan application by reducing the lender’s risk.
- Security options include:
- Second mortgage over another property
- Caveat over a property with significant equity
- Personal guarantees backed by real assets
- If There Is No Security Over Other Real Property and Little Equity in the Project Property
Borrowers who only have the project property as security and lack sufficient equity must understand the nature of unsecured lending and the market rates associated with it.- Unsecured lending carries significantly higher risk for the lender, and borrowers must offer returns that match this risk.
- Borrowers must acknowledge that private lenders prefer secured lending over unsecured lending—especially when there are many borrowers who do have security.
- Demonstrating respect for Other People’s Money (OPM) is essential. Borrowers must:
- Show gratitude, diligence, and respect for the lender’s funds and the lender.
- Provide timely responses and maintain clear communication.
- Honour commitments, including calling the lender at the agreed time without excuses such as being “tied up with the project.”
- Understand that without the lender, the project would not be possible and act accordingly with professionalism and appreciation.
- Unsecured lending can come at very high costs, and borrowers should not expect low rates. For example:
- Many people take an unsecured loan and boast about “only paying $55 per week for 3 years” on a $3,000 car, but they fail to realise that this equates to an interest rate of 62% per annum.
- This example illustrates that high-risk, unsecured lending comes with high costs, and borrowers must accept market-driven terms.
3. Structuring the Loan Request
A well-structured loan request increases the likelihood of securing funding. The request should include:
- Loan Amount & Use of Funds: Clearly outline how the funds will be allocated, e.g., land acquisition, construction costs, permits, professional fees, etc.
- Exit Strategy: Detail how the lender will be repaid (e.g., sale of the property, refinance, profits from the project).
- Borrower’s Contribution: Lenders want to see that the borrower has financial commitment in the project, such as equity or cash contributions.
4. Transparency in Financial Position
To evaluate the feasibility of the loan, lenders require a clear understanding of the borrower’s financial position, including:
- Bank Statements: Business and personal transaction statements over the relevant period.
- Liabilities & Obligations: Details of outstanding debts, mortgages, and financial commitments.
- Project Costs & Funding Gap: Breakdown of estimated costs and how the remaining funding gap will be covered.
5. Borrower’s Track Record: Have They Defaulted Before?
Lenders assess whether the borrower has previously defaulted on financial agreements. A past default can be viewed in different ways depending on how the borrower handled the situation:
- Viewed Positively If:
- The borrower has taken full responsibility for past defaults.
- They can clearly demonstrate lessons learned and steps taken to prevent future defaults.
- They have implemented stronger financial management processes to avoid recurrence.
- It could even be viewed as an asset if the borrower has gained invaluable experience in managing the aspect they previously defaulted on, ensuring they are now highly aware of the risks and how to mitigate them effectively.
- Viewed Negatively If:
- The borrower takes no responsibility for the default.
- They fail to show any learnings or improvements in financial management.
- They focus on complaining about how difficult the situation was rather than demonstrating accountability.
- They make excuses instead of acknowledging their role in the default.
- They inappropriately blame others, including those who were actually assisting them.
Borrowers should be prepared to discuss past financial issues openly and demonstrate how they have improved their ability to manage funds effectively.
6. Regular Reporting & Accountability Requirements
As the project manager has a fiduciary responsibility to lenders and investors, regular reporting is required to ensure transparency and accountability. The frequency of reporting depends on the project duration and loan term:
- For Loan Terms of 6 Months or More:
- Reporting must be provided at least monthly.
- For Short-Term Projects (Less than 6 Months):
- Weekly or fortnightly reporting is required depending on the nature of the project.
- If the Project Has Already Started:
- Evidence of actual expenditure to date must be provided.
- Borrowers must disclose whether the project is on budget or over budget, with an explanation of any variances.
7. Requirements for Loan Approval
To improve the likelihood of securing subordinate funding, borrowers must provide comprehensive and transparent project information:
- Project Details: Include full descriptions of the property, planned works, timelines, and projected outcomes.
- Financial Breakdown: Provide detailed cost estimations, funding requests, expected returns, and cash flow forecasts.
- Risk Assessment: Acknowledge potential risks and outline mitigation strategies to reassure lenders of repayment capability.
- Exit Strategy: Clearly define how the loan will be repaid or refinanced once the project is completed.
8. Secondary Lender Funding with Limited Security
If security over additional real property is not available, borrowers must adhere to more stringent scrutiny from secondary lenders. In these cases:
- Transparent Project Risk Reporting: Fully disclose all relevant project risks.
- Enhanced Financial Documentation: Provide a robust financial overview to demonstrate creditworthiness and repayment feasibility.
9. Supporting Documentation
Borrowers are required to provide all documentation that allows for a clear understanding of risk and return. This may include:
- Title deeds and property contracts
- Development approvals and council permits
- Financial statements and credit history
- Valuations or appraisals
Important Notes:
If there are walls being removed—whether load-bearing or not—or kitchens and bathrooms are removed, this can devalue the property during the period these elements are missing. Properties without functioning kitchens or bathrooms are typically deemed uninhabitable, and if the project is delayed, the lender’s funds are at risk. These considerations should be communicated to the lender to show awareness of the project’s risks and timeline.
Borrowers can improve their chances of securing funding if they have a secure day job and provide evidence of their wages. Offering a percentage of their weekly wages as security for repayment in case of default or incapacitation can help mitigate lender risk.
If borrowers work full-time in their property business, offering a percentage of their future profits as security for repayment is another way to provide additional reassurance to the lender. This shows a strong commitment to the success of the project and further aligns the borrower’s interests with the lender’s.
Years in Employment or Business:
Lenders view years in stable employment or business favourably. Full-time employees should provide at least 3 years of tax returns from the same job to demonstrate job stability and income reliability.
For those in business, providing 3 years of tax returns to show average yearly earnings is essential. This helps establish a history of income, which reassures the lender that the borrower can meet repayment obligations.
If your lender is experienced in property business projects, offering an irrevocable enduring power of attorney for situations where you default or become incapacitated will also demonstrate responsibility and foresight. Additionally, including a project management fee, expenses, and travel costs in the loan agreement can be beneficial, as can offering a review fee to compensate the lender for their due diligence. Having all documents organised is key.
Progress Reports on Work Completed
- Before-and-after pictures at key milestones
- Details of work completed, pending work, and expected timeframes for the next stage
- Site visit updates, including lender site inspection visits if required
Financial Reporting & Accountability
- Budget vs Actual Expenditure Report: Clearly showing variances in both dollar amounts and percentages
- Cash Flow Tracking: Showing how funds have been allocated and projected future expenses
- Regular Financial Statements: To ensure that funds are being spent as planned
- Copies of Builder’s Contracts & Key Documents, including:
- Builder’s licences, insurance certificates, and compliance certificates
- Building contracts and variations
- Purchase contracts for the property
- Approved development plans, permits, and any third-party contracts
Lender Communication & Response Timeframes
Borrowers must respond to lender requests within 24 hours. Prompt responses ensure smooth project execution and avoid unnecessary delays. Any major project changes (e.g., delays, cost overruns) must be communicated immediately.
In addition to reporting on project progress, borrowers should keep lenders updated on the following:
- Proposed Variations to Contracts:
If there are any proposed changes or variations to the builder’s contract, supplier agreements, or other project-related contracts, borrowers must inform the lender before these changes are finalised. Lenders need to understand how these changes may impact the project’s timeline, costs, and overall feasibility. - Updates on Market Fluctuations:
It is essential to keep the lender informed about any significant changes in the market that could affect the project’s financial viability. For example, if material costs rise unexpectedly, labour shortages occur, or interest rates fluctuate, these market shifts should be communicated promptly. This helps the lender stay aware of any risks that could impact repayment or the project’s success.
This level of communication helps manage expectations and maintains trust between the borrower and lender.
10. Legal & Financial Documentation Requirements
Proper documentation is essential to formalise the agreement and ensure legal protection. This includes:
- Loan Agreement: Clearly defining the terms, repayment schedule, interest rate, and security arrangements.
- Property Security Documentation: Mortgage or caveat registration if applicable.
- Builder & Supplier Contracts: Verification of project costs and obligations.
- Insurance Certificates: Ensuring adequate coverage for the project, as required by lenders.
- Quotes & Appraisals: Supporting documents verifying estimated costs and expected project value.
- Itemised Invoices: Detailing all costs associated with the project to ensure transparency.
Conclusion: Preparing a Strong Funding Request
A subordinate lender’s primary concern is risk mitigation. Borrowers must present a well-documented case, demonstrating financial capability, security, and a viable repayment strategy.
By addressing these factors, borrowers improve their chances of securing funding and building strong lender relationships for future projects.
Final Note
This guide should be read in conjunction with the Guideline to Request Funding from a Secondary Lender. Meeting the criteria outlined here is essential to improve approval chances when seeking funding from subordinate or secondary lenders.