Discussions continue in the media about financial institutions capitalization levels. A recent discussion about having to have the resources to be able to endure one month of turmoil had Bruce and me shaking our heads. “Turmoil” lasts longer than one month when a government guarantee is not available. We have the scars to prove it.

At the height of the GFC many Investors came in to see either Bruce or me. In essence they wanted to make sure we were still here and working on their investments as so many other operators had simply disappeared.

“While “selling” loans may not be the optimum for profitability
I sleep easier knowing that GPS is a robust business which puts
the interests of its Investors ahead of its own.”

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Accordingly, I have set up the GPS business so we have recurring income to meet expenses should there be another period of “turmoil”. The GPS cash-flow provides for at least 12 months. I have developed the business so that GPS is not reliant on application fees to pay wages and for there to be adequate recurring income and other resources available to facilitate an orderly wind down of the loan book, should it be necessary. Lending because you have to lend, rather than because you want to lend, is bad practice. Another test I run on GPS is my “stress test”. This is essentially removing all new lending from the funding cash-flow and ensuring that no increase in funds under management is required to fully fund or settle loans. These tests go well beyond the legislative requirements for GPS. Access to additional funding lines assists GPS to pass the self-imposed tests. While “selling” loans may not be the optimum for profitability I sleep easier knowing that GPS is a robust business which puts the interests of its Investors ahead of its own.

The above is one of my well-worn sayings. The saying goes on further to make the point that even fewer lenders can competently manage a cash-flow to ensure consistency of use of monies in good prudential loans.After over 20 years of lending, you develop an instinct for good loans which makes loan selection more efficient. I now spend the majority of my time being proactive with projects by visiting them on-site and dealing with the inevitable issues when they arise. Hand in hand with this process is close management of the GPS funding cash-flow.One of the tools GPS has developed for managing its funding cash-flow is the number of funding lines available to us. The primary funding lines are the GPS Invest Select and Pooled Funds. We now have access to six other potential funding lines. This enables GPS to have a greater diversity of loans which assists in smoothing the funding cash-flow.Late last year GPS was a bit of a victim of its own success when several loans completed well ahead of schedule causing a buildup of cash available for investment. We now have a strong loan pipeline which has been able to be ramped up to deal with this buildup.

The budget for 2015 is to settle two loans each month and to build the GPS funded loan book to around 24 loans at any point in time. This is a sustainable level for the resourcing at GPS and provides good diversity for GPS Investors.It is unusual if I do not look at a new lending opportunity each working day. This equates to about 240 lending opportunities each year. On the GPS budget this equates to a selection rate of about 1 in 10.History has established that to settle two loans in a month we need to have four loans in an advanced state of negotiation in the loan pipeline. Inevitably, there will be delays and loans that do not pass credit. It is imperative that for each loan we dot our i’s and cross our t’s before we settle so as to reduce the incidences of problems arising.Access to additional funding lines enables GPS to deal with any surges in the supply of good quality loans without losing credibility with Borrowers. It also assists in dealing with the peaks and troughs of the funding cash-flow.

GPS Investors should note that the use of other funding sources does not jeopardize your position as an investor. 100% of net settlement proceeds from each loan will be used first to repay Investors. No funds are made available to other parties, including the Borrower, until such time as each loan has been fully repaid.

While GPS may have been doing what we do for over 20 years, we remain committed to further developing our skill base and improving on service levels.