Example: bridging a builder's late progress payment
An illustrative example: a Geelong builder is owed a progress claim that is running 60 days late, wages and suppliers cannot wait, and equity in an investment property bridges the gap until the claim is paid.
- The scenario: a builder is owed $150,000 on a progress claim running 60 days late, with wages and suppliers due now. It is an example, not a client.
- He owns an investment property with equity. A loan secured on it covers the gap in days.
- The claim is the exit: when it is paid, the loan is repaid early, with no early repayment fee.
- Use the state's security of payment process as well. Borrowing covers the wait; it does not replace getting paid.
The situation in the example
A Geelong builder has done the work and submitted the claim. The money is running 60 days late, and the business still has to pay wages on Thursday and suppliers before the next delivery. Nothing is wrong with the job or the claim; the problem is entirely timing. That is the kind of problem a property-secured loan is good at, because the exit is already known.
Why property, and not the claim, secures the loan
A progress claim can be disputed, delayed or set off, so it is not security a lender can rely on. Real estate is. The builder in the example owns an investment property with good equity, and the loan is sized from that equity: up to 80% of a residential property or 70% of a commercial one, less what is already owed on it, within $20,000 to $5,000,000. No financials or valuation are asked for.
How it ends
When the head contractor pays, the claim repays the HomeSec loan and the security comes off. There is no penalty for repaying early, and unused months of capitalised interest are rebated. If the payment takes longer than anyone expected, the term is open, so the loan simply runs until it arrives.
Do the statutory part as well
Every state has a security of payment process for unpaid progress claims, and it is far quicker and cheaper than court. The deadlines are short and counted in business days, so get them from a construction solicitor straight away. A loan covers the wait while that process runs; it is not a substitute for it.
Read the transcript
Example. A Geelong builder is owed $150,000 on a progress claim. The payment is running 60 days late and wages and suppliers can't wait. He owns an investment property with good equity. A short-term loan secured against it covers the gap in days. When the claim is paid, he clears the loan early with no early repayment fee. HomeSec Business Finance, Australia's fastest and most flexible business loans.
Transcribed from the recording's own captions. An example for illustration only, not a client's loan.
Questions people ask next
Can I borrow against the unpaid progress claim itself?
What if the head contractor pays even later than expected?
Does the claim have to be certified?
The video is the short version. The written guide has the detail: when a certified progress claim has not been paid.
To talk it through about your own property, ring a Lending Manager on 1300 93 83 87, Mon–Fri, 8:30am – 5:30pm Melbourne time.
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Reviewed by Jason Brockmuller, Joint Chief Executive