Private credit, in plain English.
Working definitions of the terms that appear on a private credit loan file. Written for the broker, borrower or investor who'd rather not Google mid-conversation.
40 terms today, expanding as the team writes them. Cross-references between entries link the related terms so a question about LVR doesn't leave you wondering what an exit strategy is.
LVR (Loan-to-Value Ratio)
The size of the loan as a percentage of the property's value. The lower the LVR, the more conservative the lender's exposure.
Bridging finance
Short-term lending used to bridge the gap between two events, typically a settlement and a sale.
Drawdown
The act of advancing loan funds to the borrower, can happen as a single event or in staged tranches.
Tranche
A defined portion or stage of a loan, can refer to a drawdown stage, a slice of a structured facility, or a layer in a securitisation.
LVC (Loan-to-Cost) / LTC
The size of a loan as a percentage of total project cost, the development-finance equivalent of LVR.
Establishment fee
A one-off fee payable to the lender at loan settlement, covering the cost of assessing and establishing the facility. Also called an origination or application fee.
Discharge of mortgage
The legal process by which a lender releases its registered security interest from a property's title once the loan is repaid in full.
Residual stock loan
A facility that funds completed but unsold development stock while the sales campaign runs.
Pre-sales
Contracts of sale exchanged on development stock before construction is complete.
GRV (Gross Realisation Value)
The total expected sale value of a completed development before selling costs.
First mortgage
A loan secured by the senior charge over a property. The first mortgage holder is paid out first if the property is sold or repossessed.
Second mortgage
A loan secured by the second-ranking charge over a property, sitting behind a senior first-mortgage lender.
Caveat loan
A short-term loan secured by lodging a caveat over a property, used where speed matters more than tenor.
GSA (General Security Agreement)
A security agreement under the PPSA giving a lender a security interest over all the borrower's present and after-acquired assets.
PPSR (Personal Property Securities Register)
The national online register of security interests in personal property, the definitive record of who has what claim on what asset.
Cross-collateralisation
Using the same security across multiple loans, or multiple securities to support a single loan.
Exit strategy
The documented plan for how a loan will be repaid at the end of its term.
DSCR (Debt Service Coverage Ratio)
The ratio of a property's net operating income to its debt service obligations, a primary measure of a commercial loan's affordability.
ICR (Interest Cover Ratio)
The ratio of income to interest expense, measures whether a borrower can service the interest component of a loan from cashflow.
Personal guarantee
A contractual undertaking by an individual (typically a director) to be personally liable for the borrower's debts.
Loan covenant
A contractual undertaking in a loan agreement requiring the borrower to maintain certain financial or operational standards through the term.
Serviceability
The lender's test of whether a borrower can afford to repay a proposed loan at the required rate, including any stress-test buffer applied on top.
Mortgagee in possession
The status of a lender that has taken legal possession of a property following a mortgage default, with the right to sell or manage it.
Wholesale investor
An investor qualified under section 708 of the Corporations Act 2001 (Cth) who can be offered securities outside the retail disclosure regime.
FUM (Funds Under Management)
The total dollar value of capital a firm manages on behalf of investors, across all its funds and mandates.
Private credit
Lending provided by non-bank financiers, usually funded from wholesale capital rather than retail deposits.
Non-bank lender
A lender that operates outside the APRA prudential regime, funded from wholesale capital rather than retail deposits.
Mezzanine finance
A layer of debt that sits between senior secured debt and equity in the capital stack, higher return, higher risk.
Senior debt
Debt that ranks first in the capital structure, gets paid out before any subordinated debt or equity.
Subordinated debt
Debt that ranks behind senior debt in the capital structure, higher yield, higher loss-absorption risk.
AFSL (Australian Financial Services Licence)
The ASIC-issued licence that permits a business to provide financial services, including arranging or providing private credit, in Australia.
PDS (Product Disclosure Statement)
The legal disclosure document an issuer must provide to retail investors before they invest in a financial product.
IM (Information Memorandum)
The disclosure document for wholesale-only investment offers, sets out the fund's terms, strategy and risks.
NAV (Net Asset Value)
The dollar value of a fund's assets less its liabilities, the per-unit NAV is the price at which units are issued and redeemed.
Gearing
The use of borrowed money to fund an investment. Negative gearing means holding costs exceed income; positive gearing means income exceeds costs.
Line fee
A fee charged on the undrawn portion of a committed facility, separate from interest on drawn funds.
Priority deed
An agreement between secured lenders that sets the priority order of their security interests over the same assets.
Vendor finance
A loan from the seller of a property or business to the buyer, used as part of the purchase price.
Redraw
The ability to access extra principal repayments previously made on a loan, drawing them back as funds.
Offset account
A separate transaction account linked to a loan, whose balance reduces the interest calculated on the loan.