By Gareth Vaughan Business Finance Ltd, a specialist lender to companies buying assets such as vehicles and machinery, is looking to raise NZ$25 million and team up with Mike Pero Mortgages as it restarts lending and finance activities after a more than two year break. Business Finance executive director Stephen Cole told interest.co.nz that after the demise of about 40 finance companies in recent years there’s a gap in the market for a well structured, traditional finance company. Business Finance, now 50% owned by Australia’s Liberty Financial Pty Ltd, has never previously had more than about NZ$12 million in assets. But it aims to conservatively grow into a “significant” finance company. “The cost structures involved with a finance company are going to increase,” Cole says. “So you’re not going to be able to be a small one like we have been before. There’s probably a NZ$20 million minimum size going forward and this is what Liberty could give to us and why the combination can work.” Business Finance has a BB credit rating from Standard & Poor’s and a Crown Guarantee. The company will apply to be part of the new extended Crown Guarantee scheme beyond October 12, although not immediately. Cole says the firm wants to get a “few runs under its belt” through raising deposits first. “[But] there’s nothing saying we can’t get it,” Cole adds. The company, looking to issue up to NZ$25 million of secured deposits, is offering a range of loan terms and interest rates including 6% on a Crown Guaranteed deposit that matures on September 30, and 9% on a 36 month loan. A minimum investment of NZ$5,000 is required. Liberty moves Established in 1994, Business Finance suspended accepting new deposits and started repaying all secured deposits on maturity in January 2008 as the global credit crunch took hold. All deposits and interest was repaid by March 2009. It now plans to loan money to businesses to help them fund capital equipment purchases and to provide short-term first ranking mortgage lending on residential property. Business Finance won’t fund construction or property development, won’t provide finance for consumer goods nor loan money to related parties. Last November Liberty swapped NZ$2.05 million of mortgage backed notes for a 50% stake in Business Finance, lifting the Kiwi company’s equity to NZ$4.1 million. Liberty also has the option to acquire all or part of the half stake in Business Finance owned by Cole and fellow co-founder Leo Davis on or after June 30, 2011. Liberty is controlled by Australian based former McKinsey consultant Sherman Ma. Cole suggests it’s more likely than not that Liberty will buy out the founders, who also have a management contract to run Business Finance until June 30 next year. But he and Davis will probably continue managing the business beyond that. Meanwhile, Business Finance has also borrowed NZ$20.05 million from Liberty through a 10-year unsecured loan and bought NZ$22.1 million worth of New Zealand residential mortgage backed securities issued by Liberty. The mortgage deal is to bulk up and give Business Finance some immediate cashflows, Cole says. A new residential mortgage product is now planned but Business Finance will limit all residential property loans to a loan to value ratio of no more than 65%. The average loan size will be between $200,000 and $250,000 with terms ranging from six to 24 months plus an option to extend for a year. Cole is also eyeing opportunities to source business by working with another New Zealand firm that’s 50% owned by Liberty, Mike Pero Mortgages. He hopes this link will help Business Finance secure both mortgage and plant equipment business with the potential for the relationship to be a “big plus.” But in the meantime Cole is taking a cautious approach with marketing of Business Finance’s offer currently restricted to previous customers. “We realize it’s possibly another year before there’ll be a lot of recovery in the small and medium business sector. But, if over the next year we get things right and we’re there when the recovery comes, I think there’s a real opportunity.” A full copy of Business Finance's prospectus is here. This was first published this morning in our Daily Banking and Finance newsletter, which is for our paying subscribers. Find out more here.
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