Example: funding Christmas stock in two weeks
An illustrative example: a retailer needs Christmas stock paid for in two weeks while the bank wants months of paperwork, and a second mortgage over home equity pays the supplier now, with Christmas sales repaying it.
- The scenario: a retailer needs $180,000 of stock before Christmas. The supplier wants paying in two weeks; the bank wants three months of paperwork. It is an example, not a client.
- She has equity in her home, so a second mortgage behind her existing home loan pays the supplier now.
- Christmas sales repay it. Interest can be capitalised for up to six months, so there are no repayments while the stock sells.
The squeeze every retailer knows
Christmas stock has to be paid for months before it earns anything. In the example the supplier wants the money in two weeks, and the bank wants three months of financial paperwork before it will even consider a loan. By the time a bank says yes, the order has gone to someone else. The video is about closing that gap without waiting for the bank.
Why a second mortgage fits this one
The owner has plenty of equity in her home. A second mortgage is registered behind the existing home loan, so that loan is not refinanced, renegotiated or disturbed. The new loan is sized from the equity: up to 80% of a residential property, less what is already owed, within $20,000 to $5,000,000. No financials are asked for. The first lender's consent is generally required for a registered second mortgage; in Victoria a caveat can be used instead.
How the stock pays it back
The exit is the stock itself: Christmas trade repays the loan. Capitalising interest for up to six months means no repayments while the shelves empty, and repaying early costs nothing extra. It is the same shape as any stock deal with a deadline, which is why Paul's whiteboard video sets the cost of the money against the profit it makes possible.
Read the transcript
Here's an example. A retailer needs a hundred and eighty thousand dollars of stock before Christmas. The bank wants three months of paperwork. The supplier wants paying in two weeks. The owner has plenty of equity in her home. A short-term second mortgage pays the supplier now and Christmas sales pay it back. A repayment holiday of up to six months gives the stock time to sell. 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. The published terms above set out what "six months" means.
Questions people ask next
Can I use my home as security for a business loan?
What does six months with no repayments actually mean?
What if the stock sells more slowly than planned?
The video is the short version. The written guide has the detail: business loans for retailers.
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