Video · 1:20

Consolidating stacked business loans with weekly repayments

1:20 · Posted 27 September 2023 on the HomeSec YouTube channel

On-screen cards set to music: a business servicing two, three or four loans with weekly repayments, and a first or second mortgage with no repayments for up to six months that buys the time to refinance and consolidate.

In short

Stacking happens one loan at a time, often a new loan to cover the last one's repayments. It is the weekly repayments, more than the total owed, that break the business.
A first or second mortgage over property can pay the whole stack out in one settlement, and with interest capitalised for up to six months there is nothing to pay while the business steadies.
Capitalised interest is not waived. It accrues and is added to the loan, so the six months are for fixing the cause and arranging the exit.
The video's other point: for the lenders in the stack, a payout is faster and cheaper than chasing a default.

What the video shows

There is no presenter, just a sequence of cards set to music. Some business owners take out loan after loan, until they are servicing two, three, four or more. Some buckle under the weight of so many weekly repayments: like musical chairs, the music eventually stops. The cards then make the case for one fix, a first or second mortgage from HomeSec with up to six months of no repayments, which gives the owner room to arrange a full refinance and consolidate the debt. They add that it is faster and cheaper for the existing lenders than litigation, and close on who qualifies: anyone with enough equity in real estate and a business purpose for the loan.

Why weekly repayments are the real problem

Each loan in a stack may look affordable on the day it is written. Together they are not, because the repayments arrive every week whether or not the customers have paid. As an illustration, three loans repaying $2,500, $1,800 and $1,200 a week take $5,500 out of the account every week, about $23,833 a month, before wages, rent or the ATO. When a slow month arrives, the obvious move is another loan to cover the shortfall, which adds a fourth repayment and makes the next slow month worse. That is the musical chairs the video describes.

How one loan replaces the stack

The loan is secured on property, the business owner's home or an investment property, and sized on its equity rather than on turnover, anywhere from $20,000 to $5,000,000. Written payout figures are collected from every lender in the stack. On settlement day each one is paid directly from the new loan and the debits stop that day. With interest capitalised for up to 6 months there is nothing to pay in that period, and after it there are no daily or weekly debits. The term is open, and if the loan is repaid early the unused months of capitalised interest are rebated. Funds can be released in as little as 24 hours from a clean, complete scenario.

What the breathing space is for

The cards name the destination: a full refinance. Six months without repayments gives the books time to show a business that is trading normally again, which is what a bank or longer-term lender will want to see before it repays the HomeSec loan. Other exits work too, such as selling an asset or a payment the business is already owed. What consolidation cannot fix is a business that loses money every month; if the stack built up because the business is unprofitable, one loan only delays the same problem. The guide to business debt consolidation sets out which debts to clear first, and why the ATO usually heads the list.

Why the existing lenders are usually glad

A lender in a stack that is starting to fail faces a long, uncertain recovery against a business with several other creditors. A payout in full on a known date is the better outcome for it, which is the video's point about litigation. For brokers, that makes a stacked client one of the clearest cases for a property-secured loan; Paul makes the same point in his video for brokers on a genuine LVR.

Questions people ask next

How do I find out what it will cost to pay out each loan in the stack?

Ask each lender for a written payout figure as at a settlement date. Some cash flow products charge a fee for early payout, and some are priced so that much of the original charge is owed whatever the date, so the figure can be higher than the balance you expect. The consolidation is sized on the sum of those written figures.

What happens to the registrations against my business once the loans are repaid?

Each lender should remove its registration from the Personal Property Securities Register once its loan is repaid. If one does not, the PPSR's own process lets you send the secured party an amendment demand. The guide to loan stacking explains how those registrations rank while the loans are live.

Can I consolidate if one of the loans is already in default?

Often, yes. A default does not rule a file out on its own, because the decision rests on the property and the exit rather than the credit file. Moving early matters, though: the longer a default runs, the more fees and interest it adds to the figure that has to be paid out.

The full guide

The video is the short version. The written guide has the detail: business debt consolidation secured by property.

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.