Difficult loans: when the bank said no, we start looking

What is a difficult loan?

A difficult loan is a finance request that does not fit neatly inside a mainstream lender’s rules. It does not mean the borrower is a bad risk. It means the deal has a feature that a rigid policy cannot digest.

Common features include a patchy credit file, income that arrives irregularly, an unpaid tax bill, a property that is unusual or remote, a settlement date that is almost here, or a structure that needs more than one asset behind it. Any one of those can trigger a decline. Several together almost guarantee one.

The important point is that a decline is a policy outcome, not a verdict on your future. Different lenders have different appetites, and the lender that suits your deal may not be one you have heard of.

Why do mainstream lenders say no?

Banks assess thousands of applications through consistent, largely automated rules. That is efficient for ordinary files and unforgiving for unusual ones.

• Credit enquiries and defaults: a listing can end an application before anyone reads the explanation.
• Income that is hard to prove: self-employed and seasonal earnings often fall outside standard calculators.
• Unusual security: acreage, mixed-use buildings, small-town property or partly finished buildings can sit outside policy.
• Timing: a bank’s process may simply be slower than your deadline.
• Existing debt: arrears, tax debt or other liabilities can push a file over a limit.

Private and specialist lenders can often read the same file differently. They tend to ask whether the property is good security, whether the plan to repay is believable and whether the loan makes sense overall.

Who suits a difficult loan?

• Homeowners with real equity who have been declined by their bank.
• Borrowers with ATO debt, arrears or a past credit event who need to move forward.
• Business owners with property whose income cannot be documented the usual way.
• Landholders with rural, regional or unusual security.
• Anyone with a deadline that the standard system cannot meet.

If you are unsure whether you qualify as “difficult”, send us the facts. We have seen most variations.

What do lenders look at for difficult loans?

Factor	What a private lender is asking	What strengthens the file
Security	Is the property saleable and well located?	Clear title, a realistic value, equity that is not stretched
Purpose	What is the money for?	A clear, specific reason
Exit	How does the loan end?	A sale, a refinance, a settlement or a plan with dates
Borrower story	Is the history explained?	A short honest account, supported by documents
Existing debts	What ranks ahead of us?	A full picture of mortgages and charges on title

Notice that the borrower’s score is one line among several. A good plan on good property can outweigh a rough history, and a rough plan on good property cannot outweigh anything. That is why we spend time on the plan.

How does Ownright handle difficult loans?

This is the heart of what we do. Ownright is built around solutions, and difficult loans are where that shows. Trevor Scott’s 40-plus years in finance mean the team knows the lenders, the structures and the sticking points. Some of the answers we use are ones almost no other broker knows exist.

We begin by reading the declines. A decline letter often reveals the exact policy that tripped the file, and sometimes that policy can be worked around by changing the structure, the security or the lender, rather than by changing you.

Then we present the deal properly. A clear, honest summary in front of the right lender goes much further than a stack of paperwork in front of the wrong one. We keep you informed at each stage, Australia-wide. And occasionally, when the pieces fall into place in an unexpected way, we get to say that if Ownright can’t find the solution, no one can.

Ready to see where your deal could go? Send us the details through the apply page.

An illustrative example

Illustrative only. A small business owner has equity in their home, an unpaid tax balance and a bank decline because of recent late payments. The home is in good condition in a mainstream location, and the owner has a plan to clear the tax balance and stabilise cash flow.

A private first or second mortgage secured by the home can clear the tax balance and stop further escalation. The lender looks at the equity and the plan. Once the position is stable, the borrower can aim to refinance to a mainstream loan. The difficult loan was a step in a sequence, not the destination.

Mistakes to avoid with a difficult loan

• Applying to several lenders in a row without addressing the reason for the first decline, which adds enquiries and gains nothing.
• Hiding a problem that will appear in a title search or credit file anyway.
• Taking the first offer without asking how the loan ends.
• Waiting until a notice has expired before seeking help.
• Treating a short-term solution as permanent without a plan to move.

Our guide on how private lenders assess your loan explains the thinking in more depth.

Documents to have ready

• Identification for each borrower.
• Title or rates notice for the security property.
• Decline letters or a note of what you were told.
• Details of other debts, including any tax balance or arrears notices.
• A short summary of what the money is for and how it will be repaid.

Where to go from here

Difficult loans overlap with several other areas. For home loans specifically, see difficult home loans. For credit-impaired borrowers, our page on private loans with bad credit goes deeper. If a second charge fits the situation, read about second mortgages, and for tax debt see refinancing ATO debt.

What does “difficult” look like in practice?

Difficult is a wide term, and it helps to see a few of the shapes it takes. Some files are difficult because of the borrower: a credit event, a tax debt, a patchy work history. Some are difficult because of the property: a rural block, a building with a use that mixes residential and commercial, a title with an unusual restriction. Some are difficult only because of time, with a settlement or notice date arriving faster than any normal process.

Quite often it is a combination. A self-employed owner with a late-lodged return, a home on a small acreage and a settlement in three weeks has three small problems that add up to one large decline. Taking them apart one by one is often how the deal gets done.

What is the first thing we check?

We look for the single obstacle that actually stopped the last lender. It is rarely the one the borrower assumes. People often blame their credit file when the real issue was the property type, or blame the property when the cause was an unlodged return.

Once the true obstacle is known, the next step is clear. If it is fixable, such as a missing document or a small account, we fix it. If it is structural, such as a property outside most policies, we find the lenders who accept that property. If it is timing, we choose lenders who can move quickly and prepare the file so nothing stalls.

Can a difficult loan be turned into an ordinary one later?

Frequently, and that is often the intention. A difficult loan solves the problem in front of you. Over the following months, you can lodge outstanding returns, build a clean repayment record or complete the project, and then look at a mainstream lender again.

We plan that move at the beginning. Before you sign, we discuss when a refinance might become realistic, what the lender would want to see by then and how to keep your options open in the meantime. That planning is one of the main differences between a loan that helps and a loan that simply postpones.

What can you do while we work on it?

A few simple things strengthen a difficult file while the broker is already moving.

• Keep paying everything that you can, even in part, and keep records of it.
• Do not apply to more lenders yourself, because each enquiry is visible.
• Lodge any outstanding returns or statements if you can.
• Gather the documents listed above, in a single folder.
• Tell us immediately if anything changes, such as a new notice or a new offer.

Talk to a broker who enjoys the hard ones

You do not have to untangle this alone. Tell us what is going on or call 03 7043 7233, and we will start working on the way through.