South Africa needs better capital-raising industry
Banks might be relaxing their lending criteria in order to keep their residential mortgages ticking over, but a large percentage of commercial property deals are still falling through the cracks.
This is largely because applicants struggle to access the right person or department within the traditional institutions, slowing down or even ending the process, says Wilhelm Jonker, business developer at Paragon Lending Solutions.
“Many clients looking for commercial property finance approach us after their deals have been rejected by the traditional bankers. This is not because they don’t qualify, but often because they have been assessed by the wrong department, or the deal has not been presented in the right format.”
South Africa has not kept up with its international counterparts when it comes to capital-raising in the commercial space. Jonker says British banks will refer deals they don’t want to alternative lenders, while Australians are used to working with financial brokers who shop around for the best deal.
“We do not have an established capital-raising industry, so businesses – and ultimately the economy – are losing out on investment opportunities.”
One problem is large traditional lenders work in silos with little inter departmental engagement.
Another problem is traditional lenders are all fighting for the attractive, large deals – an application for a R10million bond does not receive the same attention as one for R100m.
“The problem is not malice on the part of the traditional lenders. They receive thousands of applications and those which appear to fall outside their scope or appetite cannot all be pursued,” Jonker says.
He describes a Paragon experience when helping a Joburg buyer look for a commercial property in the city.
“We approached two different divisions – a private wealth banker and the commercial property finance division. We asked both to assess the deal.
“What we got back were two completely different offers; the pricing was different, the loan-to-value difference was different.
“Even the raising fee was different,” he says.
While acknowledging that this experience was frustrating, he says it showed a clear need for independent lending specialists and room for a new era of co-operation within the financial eco-system.
Such specialists know which divisions at which institutions to approach and what terms clients should be getting.
“By working together we can make sure we get more deals over the finish line, which is exactly what the property market needs right now.”