Residual stock lending is useful only if the sell-down still makes sense
A residual stock loan can be a smart way to release equity from completed unsold units while you keep selling. My view is blunt: if the exit is weak, the loan usually makes the problem dearer rather than better.
That matters because developers and investors often ask the wrong opening question. They ask how fast a lender can issue terms. The better question is what the stock, pricing and timeline look like over the next few months, and whether the loan gives you enough room to finish the sell-down without forcing bad decisions.
Poseidon Finance arranges business and investment funding across Australia, including residual stock, development and cash-flow solutions. If you want to test whether this structure suits your deal, start at Poseidon Finance.
General information only. Business and investment purposes only, subject to lender assessment. Get your own accounting and legal advice from your solicitor and accountant.
The practical lesson: ask for changed terms early, not late
One practical lesson from "Get a Second Opinion Before You Sign" is simple: when terms no longer fit reality, ask early and in writing. The passage deals with hardship variations in consumer credit, which is a different legal setting from business lending, but the operational lesson still applies. Do not wait for default letters before you start the conversation.
"If your circumstances change then you should ask your lender for a hardship variation."
Residual stock loans are generally for business or investment purposes, so the consumer hardship regime under the National Consumer Credit Protection Act 2009 does not usually apply in the same way. But the mistake is similar across finance: borrowers go quiet when numbers tighten. In property finance, silence costs time, leverage and options.
Shane St Reynolds makes this point often in commercial lending matters. If your stock is moving slower than expected, or settlements are not landing on the dates you forecast, update your broker and lender early. A lender may consider a revised exit, staged reductions or another structure. They cannot assess what they cannot see.
When a residual stock loan actually suits
This type of facility tends to suit completed projects where:
- the units are finished and saleable;
- there is a clear title position and standard settlement pathway;
- the remaining stock has identifiable value and market demand;
- the existing construction or senior debt needs to be reduced, refinanced or cleared; and
- you need time to sell properly rather than dump stock at a discount.
Used well, the loan can free up working capital, repay pressing debt, reduce pressure from the current lender, or create room to manage sales in an orderly way. Used badly, it just funds delay.
The five things lenders assess before they take residual stock seriously
- What is actually left to sell?
Lenders will want a current stock list. Not a brochure. A proper schedule showing lot numbers, unit mix, internal area, car bays, storage if relevant, asking prices, signed contracts, settled lots and unsold lots. - How realistic are the valuations?
Expect close attention to valuation method. Some lenders focus on individual unit values, others on an in-one-line or residual stock basis. Ask whether the valuer is assessing forced sale assumptions, a short marketing period, or normal orderly sale conditions. That changes the usable number. - What is the sales evidence?
Recent settled sales in the same project matter more than old appraisals. So do current listings in competing projects. If your own settled prices are below your assumed exit values, that gap must be explained. - What is the debt position today?
Lenders need current payout figures for existing loans, any default interest, arrears, unpaid council rates, owners corporation levies where relevant, GST issues and especially ATO exposure. If there is tax debt, have the ATO position documented. - What is the exit?
This is the big one. Will the facility be repaid from unit sales, refinance, or another capital event? If it is a sell-down exit, show the evidence for the sales pace you are assuming. Hope is not an exit strategy.
The costs worth comparing, not just the headline price
People fixate on the interest line and ignore the rest of the stack. On residual stock deals, compare these items side by side:
- Establishment and line fees: ask for the dollar amount and when it is payable.
- Valuation costs: one valuation, desktop updates, or multiple securities?
- Legal costs: your solicitor’s fees and the lender’s legal fees.
- QS or other reports: sometimes not needed on completed stock, sometimes still required depending on structure.
- Default terms: what happens if a sale slips or a covenant is missed?
- Prepayment rules: can you pay down from each sale without penalty, and what release price applies per lot?
- Extension fees: if the term is short, what does an extension cost and who decides?
The common mistake is comparing one lender’s indicative rate to another lender’s total cost. Compare total dollars to exit, not marketing language.
The release-price question most borrowers leave too late
If units will be sold one by one, ask for the lot release mechanics before you accept terms. The exact question is:
What amount must be paid to release each unit at settlement, and does that amount step down as the overall debt reduces?
This matters because a facility can look workable in aggregate but become awkward lot by lot. If the release price per unit is too high, you may struggle to settle ordinary sales without constantly renegotiating. Get that schedule documented in the facility terms.
A short decision test before you apply
Use this before you spend time and money on valuations and legal documents:
- Prepare a 90-day stock sheet. List every unsold unit, current asking price, best realistic sale price, and whether there has been genuine enquiry in the last 30 days.
- Get current payout letters. That means every secured lender and any material ATO amount you want addressed.
- Check title and settlement readiness. Confirm there are no unresolved title, defect, strata, fire compliance or occupancy issues likely to stall settlements.
- Map your monthly carry. Include finance costs, council rates, strata or body corporate, land tax if relevant, insurance and selling costs.
- Write a one-page exit note. How many units need to sell, by when, and at what net proceeds to clear the facility?
- Stress-test your pricing. If sale prices are lower than hoped, does the exit still work?
If you cannot complete those six steps with confidence, the issue may not be finance. It may be the project’s hold strategy.
The counter-intuitive mistake: holding longer can reduce your options
Many borrowers assume more time always improves sale outcomes. Sometimes it does. Sometimes it weakens the file.
Why? Because lenders look at momentum. If a project has been complete for a long time with limited conversions, the questions become sharper: is pricing too ambitious, is the product mix wrong, is there oversupply, are agents underperforming, or are there issues buyers keep discovering during due diligence?
That is why I prefer an early, evidence-based review over a passive hold. Review asking prices, incentives, sales channels and the possibility of bulk or tranche sales. A residual stock loan should support a plan, not replace one.
What to send for a faster indicative assessment
If you want a fast indication, send a complete pack. At minimum:
- a current stock list;
- existing loan statements or payout letters;
- a recent valuation if you have one;
- project address and security details;
- entity structure and borrower details;
- current sales schedule showing settled, exchanged and unsold lots;
- a brief explanation of why the facility is needed and how it exits.
Incomplete applications do not just move slower. They often look riskier than they are.
Why this sits squarely with the lesson in "Get a Second Opinion Before You Sign"
The practical lesson I want readers to take from "Get a Second Opinion Before You Sign" is not to leave lender communication until the file is already in trouble. The book’s chapter on hardship variations is about a consumer law process, but the wider business lesson is still sound: when circumstances change, act early, write clearly, and put a workable proposal on the table.
"Borrowers experiencing short-term financial hardship can ask the lender in writing to reduce, extend or postpone loan repayments."
For business and investment lending, your exact rights depend on your documents and the lender, so get your own solicitor and accountant involved where needed. But the commercial principle is the same. A timely, well-documented proposal gives you a chance. Delay narrows choices.
If the residual stock is sound, apply online and keep the file tight
If you have completed unsold units and need to release capital while you sell, a residual stock facility may be the right tool. If the stock is stale, the debt position is unclear, or the exit is vague, sort those points first.
For business and investment funding from AUD 5,000 to AUD 7.5 million, including development loans, business loans, cash-flow funding and funding to address ATO debt, you can apply online through Poseidon Finance. Fast indicative approval may be available, subject to lender assessment.
If you want the broader lending background before you sign anything, the revised edition of "Get a Second Opinion Before You Sign" is worth having beside you.
For Shane St Reynolds’ wider commentary, see shanereynolds.com.au.
Talk to Shane St Reynolds about the structure before you commit
Start with Poseidon Finance if you want to apply online for a residual stock loan or another business and investment funding solution.
If you want to discuss the deal first, book a consultation at shanestreynolds.com/contact, email [email protected] or call 08 6263 6236.
You can also pick up the revised edition of "Get a Second Opinion Before You Sign" before you sign loan documents.