Typically, lenders will apply one of two gearing calculations
to management rights funding :
Unit value x gearing ratio – usually 80%
Management Rights Value x gearing ratio – usually
65%
Or
Unit and Management Rights Combined Value x 65% to 75%
gearing.
Experience suggests that working on an “all up”
gearing ratio of around 70% is a good place to start.
As an example the calculation then looks like this :
• Unit Value $400,000 • Management
Rights Value $700,000 • Costs (say 5%)
$55,000 • Total Required $1,155,000
• Less $385,000 deposit + costs •
Loan Amount $770,000 being 70% of the combined purchase
price
Of course, gearing is only one part of the equation.
Lenders are just as interested in the quality of the
asset, the borrower’s previous work experience
and the capacity of the asset to service debt. In particular
most experienced management rights lenders will consider
the following issues when assessing a loan :
• Balance term of the agreements (including
options) • Sustainable net profit
• Future prospects or upside • Debt
Servicing Capacity • Opportunities to
increase net profit • Composition of the
letting pool • Operating business model
• Legislative Risk • Economic
Trends and Drivers • Qualifications of
the intending purchaser
Before your application is presented to a prospective
lender we will go through a thorough assessment with
you. Our service ensures that your application is presented
in the best possible light. Intending new entrants to
the industry should not be deterred by not having had
a management rights previously. In most situations “life
experience” and an ability to communicate effectively
are the most important qualifications.
