The rise of alternative lending
A growing non-bank lending sector will bring New Zealand into line with global finance markets. Alternative lending in New Zealand is on the rise - here's what it could mean for you.
The past few years have cemented a transition from traditional financing to alternative lending on both a global and local level. This is a good thing, assures Mark Farrands, Head of Debt Advisory at JLL NZ. Here’s why.
Spurred by the perfect storm of rising costs and interest rates, pandemic-driven cash flow pressures and constant challenges for businesses over the past two years, alternative lending is on the rise. The burgeoning non-bank lending sector now presents a major opportunity for New Zealand’s development pipeline. With new funding streams becoming increasingly accepted for businesses of all sizes, investors and developers frustrated by the current squeeze on bank lending need not despair.
“Many will have already seen their traditional lending avenues reduced or closed off, partly by regulations instructing banks to hold more capital and first tier lenders reducing appetite,” says Farrands. That’s where alternative lending comes in.
Alternative lending is a form of financing that provides funds to businesses and individuals without needing to go to a traditional bank or financial institution.
Forms of alternative lending include asset-based lending, property development finance, peer-to-peer loans, crowdfunding and invoice finance.
The new normal
While by no means a new phenomenon, a growing non-bank lending sector to complement the banking market will become the new normal - and bring New Zealand into line with global finance markets. These new lenders are utilising technology to provide efficient and effective lending services while recognising the full potential of previously underserved businesses. This evolving funding channel is providing property owners and developers with access to capital, regardless of whether they are a top tier bank client.
The increased offering comes at a time when banks are becoming more risk-averse and cautious about taking on new clients.
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“Under the prevailing economic conditions, the major banks will continue to take a risk-off approach to lending,” predicts Farrands. “This will see them reserve capital only for their top-tier customers, leaving a significant funding gap for projects earmarked for development.”
With banks now taking a lower share of the property finance market, a mounting number of alternative lenders have stepped forward to bridge the gap. “We’re also aware of more local and offshore funds now operating in New Zealand that lend on property.”
Alternative lenders do not have the same restrictions as banks, so they are typically independent and service focused. Part of the appeal of these lenders is their case-by-case approach, as opposed to a one-size-fits-all. This means they may be better placed to understand a business’ needs and offer agreeable terms with flexibility.
“Many lenders will specialise in certain locations or asset types - and pricing will range widely depending on equity levels, how de-risked or pre-sold the asset or project is and the risk appetite of investors,” he explains.
A diversified lending pool is great for the New Zealand economy. It has the potential to drive inclusion and increase choice and competition, ultimately driving innovation across all financial products and services.
It also means there is less reliance on the trading banks to do all the lending and enables them to monitor how much risk they take on.
However, as with all new opportunities, there are new risks. “With the lending landscape now comprising a broader range of risk profiles and debt servicing requirements, borrowers should seek specialist advice to ensure they find a partner suited to their circumstance,” Farrands recommends.
We’re excited by the opportunity to connect borrowers with lenders to create mutually beneficial development partnerships.
JLL is passionate about uncovering new opportunities and capital sources, helping businesses every day to achieve their investment goals.
Contact Mark FarrandsHead of Debt Advisory
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