Business loans for professional services firms

HomeSec lends to accounting, legal, engineering, architectural and consulting firms against equity in real property, from $20,000 to $5,000,000. No financial statements, no valuation and no serviceability test, funded in as little as 24 hours — which suits a practice whose value is in its people rather than in assets a lender can take.

The cash cycle you are actually borrowing against

A professional firm's money is locked up in two places a lender cannot touch: work in progress and debtors. Time is recorded, then billed weeks later, then paid on the client's terms, which for a corporate client can be sixty days and for a difficult one is whatever they decide. Meanwhile salaries — the overwhelming majority of the cost base — are paid every fortnight without exception, because the people are the business.

Firms with a seasonal profile feel it hardest. An accounting practice does much of its work between July and the lodgement deadlines and bills behind it. A litigation practice can carry a matter for a year. An engineering or architectural firm is paid at milestones set by someone else's project, and a project that pauses pauses the income without pausing the payroll.

Layered on that are the commitments that come with partnership: drawings that have to be predictable if partners are to stay, professional indemnity insurance renewed annually as a single premium, practising certificates, software licences billed per seat per year, and a lease taken on a firm's optimistic view of its own growth.

What makes the phone ring

What you can offer as security

A professional firm typically owns almost nothing a lender can take — no plant, no stock, and a debtors ledger that is often already financed. What the principals own is real property: a home, an investment property, sometimes the suite the firm practises from. That is the security, and the firm can borrow against a principal's property with the company or trust as borrower.

Where the practice owns its premises — a suite, a converted terrace, a building — that is commercial security assessed to 70% of value.

Work in progress, the fee base, goodwill and a client list are not security here. Some specialist lenders will lend against a fee base; we do not, and if there is no real property in the ownership group we will say so on the first call rather than after a month.

How much you can borrow

Take the property's value, multiply by 80% for residential security or 70% for commercial, and subtract what is already owing on it. What is left is roughly what is available, between $20,000 and $5,000,000. Several properties can be added together, and the borrower does not have to be the owner — companies, trusts and sole traders — including start-ups, with everyone on title signing. Up to 80% on residential and 70% on commercial. Lower on large acreage, and LVRs may reduce on properties worth less than $800,000.

Why the bank is slow here, and we are not

Banks do lend to professional firms, and for a large established practice with clean, current financials they are often the right answer. The problem is the shape of the process: two years of accounts, a serviceability calculation, a valuation and several weeks. A partner buy-in with a completion date, or a payroll run three weeks away, does not fit inside that.

A firm that has had a rebuilding year, taken on a lease, or written off a significant debtor also presents exactly the variance a serviceability model reads worst.

We assess the property and the exit. Fees coming in, a matter settling, a bank facility completing later — any of those is an exit, and none of them requires the last two years to look tidy.

What the money is used for

• Bridging payroll through a slow ledger. Borrowed against property, repaid as fees are collected.
• Partner buy-in or buy-out. Funded to a completion date the firm controls.
• Acquiring a fee parcel or a practice. Where the value being bought is goodwill that no lender will secure against.
• A tax bill. Paid direct to the ATO from settlement.
• Premises, fit-out and technology. Against property, because a lease and a fit-out are not security.
• Buying the suite. A first mortgage over the commercial premises the practice occupies.

From the call to the money

What it costs

Priced per file, on the property, the position, the amount and the exit. No rate is published, because a rate with "from" in front of it is the best file's number. How it is priced, and every fee that exists.

Reviewed by Jason Brockmuller, Joint Chief Executive