Glossary of Finance Terms
The amount of interest that is charged on a loan, in proportion to the amount borrowed, to allow a bank or lender to earn a profit when distributing funds.
In property development transactions, additional security could be required by lenders to reduce their risk should the developer default on the loan. This guarantee can take various forms from cash to property.
Security on a mortgage is essential because it reduces the risk a lender takes on when providing a loan. If a loan is backed by property for example. If the borrower defaults on repayments, the lender may seize the property to claim the outstanding debt.
A fee added onto a loan to compensate a lender for their commitment to offer funding. These fees are often linked to costs like undisbursed loans or unused credit lines.
A person or business that owns a share in a company’s stock. They can receive capital gains, take capital losses, and they may receive dividend payments. They are equity owners and are subject to the same benefits and drawbacks as Directors.
An individual responsible for managing the operations of a company, with the ability to exercise the business’ powers for whatever needs it may have.
A term used for obtaining legal ownership or rights over real estate. The rules may vary from one state to another.
Lenders often provide an indication or suggestion that the offer may proceed if conditions are met, also known as a conditional offer.
The state of how goods and services are produced, distributed, sold, etc., as well as the supply of money, within a region or country.
Ideal for overseas investors, most offshore financing options are available for competitive prices and offer enticing sums of money. In general, the applications to be considered are company borrowers.
While this is used to refer to several aspects with respect to lending, it is most commonly the term used to describe a contract agreement where an individual receives money and repays the lender by a predetermined date (usually with an additional interest fee).
A legal process facilitated by the legal and financial representatives of the purchaser and the seller. Settlement occurs when ownership is passed from the seller to the buyer. Typically, the settlement date is determined in the contract of sale by the vendor.
Initial Public Offering
The process of offering shares of a corporation in a public share issuance, which can allow a company to raise capital from public investors. Often abbreviated to IPO.
Joint and Severally
Where all parties are equally accountable for the full terms of the agreement, they are in. As an example, in the instance of a personal liability case, each party will be pursued for repayment of the entire amount owed.
A loan secured by collateral, such as a property, where a lender can seize the security if a borrower defaults on their payments. The difference from normal scenarios is that the lender cannot obtain further compensation, even if the collateral does cover the full amount of the unpaid loan.
A lender’s legal right to obtain a borrower’s security if the debt obligation is not fulfilled. A full recourse is when a lender can take additional assets to repay the entire unpaid debt.
When a borrower uses property as security for the first time as collateral for a loan. As usual, if the mortgage repayments are not met as agreed, the lender can seize the security.
A term used when a borrower offers their real estate as collateral a second time to another lender while the first still has finance secured on it. The subsequent lender takes second charge over the property.
An independent consultant who examines the building costs associated with the architectural plans. in conjunction with the DA (development approval) and considers the changes in market conditions impacting labour costs and material suppliers. They are also retained by lenders to ensure that the project is correctly costed.
In terms of loans, a property caveat is a claim to a property in the form of a legal document. Creating a caveat allows both parties to claim their share of interest. Until the caveat is resolved, no further transactions can be registered against the title.
Letter of Offer
When a finance offer is presented to a borrower it can be either accepted or rejected depending on the borrower in question acceptance.
The court system uses litigation to resolve disputes. When two parties are engaged in litigation, another party may make the final decisions for them, such as a judge, unless they settle before trial.
Whenever a company sells shares on the market, it issues shares certificates. As proof of ownership and as a record of the purchase, shares certificates are issued to shareholders.
Business Activity Statements (BAS)
BAS is used to reconcile the tax collected by a business known as Good and Services Tax (GST). It is required to be paid to the government on a monthly, quarterly, or annual basis.
When a property is transferred from one party to another, typically in real estate. This could be when a seller transfers the ownership of a property (a home or land) to a buyer. Typically, this is done using a legal document as an instrument of conveyance, like a lease, title, deed, or contract.
When the financial earnings of a business activity exceed the amount needed for the costs, taxes, etc. As a simple example, this could be when a company buys something and sells it for a higher price.
Another term for security, or an asset that is accepted as security for a loan by a lender. Collateral is a form of protection to mitigate the risks involved with lending.
Investments or loans exceeding the level normally associated with project and mezzanine debt, but not participating as equal ranking equity, are deemed preferred equity.
Gross Realised Value
In the context of property construction, the Gross Realisation Value is the gross sales (or GST exclusive value of the property) upon the completion of the project. Often abbreviated to GRV.
Net Realised Value
A term used for the value of an asset, which will be realised upon the sale of the asset typically with a slight reduction due to expected causes and is commonly abbreviated to NRV.
Reserve Bank of Australia
Is the governing central bank that publishes monetary policy and interest rate announcements. This can have a varying, underlying effect on mortgage rates.
Additional charges from lenders to compensate the effort put into providing financing to a borrower. This fee can typically vary from one lender to another.
A rating indicative of an individual’s financial record, typically used by lenders to determine whether to accept funding applications based on the risk associated with the borrower. Also commonly referred to as a credit rating.
It is a legal contract to occupy the property. A lease is a contract that binds the property owner and the tenant, and a lease is an agreement between the owner of the property and the tenant for the use and possession of the property.
In most cases, residential leases last for one year; any shorter would be costly for the property owner when it comes to re-tenanting costs such as marketing, rental income delays and re-letting fees to the agent.
It is standard in commercial, industrial, and retail properties to arrange long-term leases. in addition, outgoings are negotiated but usually passed onto the tenant.
The amount of money needed to be paid upfront as part of the loan agreement. The amount specified can often vary depending on a variety of circumstances.
GSA (General Security Agreement)
To secure the lender’s interest against the relevant security entity/asset, GSAs are registered on a National Register. As part of the Register, lenders can also negotiate a priority system to ensure that their interests are protected and prioritized.
On completion of the purchase, the solicitor or conveyancer will charge a fee for the legal work carried out during the purchase process. Typically, solicitors charge a flat fee regardless of the value of the property.
If a person cannot repay their creditors, creditors can obtain a judgment in a court.
Property equity is the difference between the remaining debt and the capital value of the asset in question.
Where a lender will want a certain number of presales to reduce their risks. While the percentage of presold units is not typically set, funding can vary slightly from one lender to another.
Local town planning authorities provide written approval of a given project, typically prepared by the developer’s or landowner’s consultants, allowing the project to move forward as per the development plan.
Capital Gains Tax
If you sell an asset such as investment property for a profit, you are subject to capital gains tax (CGT). At the end of the fiscal year the capital gain is added to your income tax.
A debt passed onto a borrower from a lender secured by property.
Statement of Position
A statement of a company position related to their assets and liabilities showing the current equity position.
Principal and Interest Mortgage
A standard mortgage, with the difference that monthly repayments are part capital and part interest.
Usually refers to financing secured for the acquisition and holding of developmental sites with no certainty of immediate development.
Mortgages that are taken out against residential properties.
A detailed report specifying aspects of a property’s market value. Not to be confused with an appraisal, as a valuation provides a more accurate and recognized property value. This will often come from an independent, impartial valuer.
Loan to Value Ratio
All lenders use a Loan to Value Ratio to assess risk when they consider funding and can have a tremendous impact on the terms offered. Commonly abbreviated to LTV or LVR.
As the construction progresses Lenders typically drawn down payments in stages. It is particularly important for the lender to report the work completed by its Quantity Surveyor, so they can compare the completed work as part of the loan agreement.
Referred to as a primary mortgage, or principal debt, it is the registered mortgage that holds the property’s first ranking. Developers often prefer senior debt as the margins are typically lower since senior debt is typically provided by banks or major mortgage funds. Senior Debt is considered at lower Loan to Value Ratios.
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