Residual Stock Finance

Residual stock finance enables you to re-finance unsold stock from a construction loan and provide time to sell in a timely manner at normal commercial interest rates.

Finance parameters for a residual stock facility vary vastly between a bank and non-bank lender.

A bank will undertake a serviceability assessment to determine the suitability of finance, and will also require a valuation to be undertaken on a ‘in one line’ basis. This will result in a much lower gearing than typically feasible for a client but will ensure that the bank can sell all units in a fire sale scenario without losing their principal loan amount.

Whereas, a non-bank lender will assess any loan requirement on the basis of the direct market conditions and will determine if the loan should be maintained via interest servicing or capitalisation. A non-bank lender will also allow a valuation to be undertaken on a gross realisation basis and provide a higher LVR than a bank. Whilst their interest cost will be higher than a bank, the overall loan parameters are generally more feasible when refinancing residual stock.

Most banks will also restrict the rate of sales of residual stock whereas a non-bank lender is much more flexible.

Typical loan parameters for Residual Stock Finance Loans

• From $1,000,000 – $100,000,000

• Facility Limits:

  • Banks – up to 50%

  • Non Banks – typically 65% but up to 75%

• Pricing:

  • Banks from 4%

  • Non Banks from 5.50%

• Valuations:

  • Banks – “In One Line” Market Value

  • Non Banks – “Gross Realisation” Market Value

• Interest Coverage (ICR):

  • Banks – from 1.5 times

  • Non Banks – from 1 times

• Loan Servicing:

  • Banks – from direct rental cashflow

  • Non Banks – from direct rental cashflow or interest capitalised

Key Features of Residual Stock Finance:

1. Secured Against Unsold Units: Loans are secured by the completed but unsold properties in a development.

2. Low Loan-to-Value Ratios (LVR): Typically up to 65–75% of the property value, depending on the lender.

3. Interest-Only Payments: Allows developers to maintain liquidity by paying only the interest during the loan term.

4. Flexible Terms: Short- to medium-term financing designed to bridge the gap until properties are sold.

5. No Pre-Sales Requirement: Unlike construction loans, lenders do not require pre-sales to approve financing.