Image source: Royce Stone Capital

Tarek, welcome. Could you tell us about your background and what inspired you to start Royce Stone Capital, focusing on areas like second mortgages?

Thanks for having me. My background is in finance, with master's degrees in Business Administration and Commerce. I spent time working in mergers and acquisitions. During that period, I saw many mid-market and family-owned businesses struggling to get the right funding from traditional sources. Big banks can be slow and inflexible. I started Royce Stone Capital in 2017 to offer a better way, providing financial solutions like second mortgages tailored to what a business needs to grow.

Royce Stone Capital is known for working differently than big banks. What's the main advantage for a business owner who comes to you for funding, especially considering a second mortgage?

The biggest advantages are speed and flexibility. We work closely with a network of family offices and high-net-worth investors, which means we can make decisions quickly—often approving loans within 48 hours and getting the funds to the business within seven business days. Our solutions, especially our second mortgages, are designed to fit the specific situation of the business, not a one-size-fits-all model.

You mention speed – getting funds within seven days is remarkably fast. How do you manage that without cutting corners on checks and safety?

It's about having direct relationships with our capital providers. We don't have layers of committees. Plus, for about 90% of our deals, our family office partners conduct their property valuations. This cuts down on time and external costs, but the assessments are still very thorough. Safety and careful checking are always top priorities.

What does a "tailored" second mortgage solution from Royce Stone Capital look like for businesses? Can you give an example of how you customise a loan?

A tailored solution means we look at the business's specific needs and assets. For example, with our second mortgages, we can often offer a higher loan-to-value ratio, sometimes up to 80%, when combined with a first mortgage, which is more than many traditional lenders. We can also be flexible with interest payments – perhaps interest-only for a period or adding the interest to the loan principal to help with cash flow. We can also secure a loan against multiple properties if a business needs a larger amount for a big project.

Taking on any loan involves risk. How does Royce Stone Capital help businesses manage the risks of a second mortgage, and how do you protect your investors' money?

Risk management is key. For businesses, we make sure the loan structure is sustainable. We also believe in alignment; for instance, we often like to see the business owners or directors co-invest their funds. It shows commitment. For our investors, we secure loans with real estate and business assets. We also use tools like first mortgage subordination agreements and constantly monitor economic indicators with our own systems to spot potential issues early. Our careful approach has led to a very low default rate, around 1.2% over the last five years.

We've seen some mixed signals in property-related lending globally. For instance, reports from the US show a big drop in people taking out mortgages for second homes, partly due to high rates. On the other hand, the UK's second-charge mortgage market has seen strong growth. What's the current feeling in the Australian second mortgage market, and how is Royce Stone Capital navigating these trends?

That's an interesting point. The market for purely lifestyle second homes can be very sensitive to interest rates and economic outlooks, as seen in the US. In Australia, while those factors play a role, our focus at Royce Stone Capital with second mortgages is primarily on funding for businesses – growth, working capital, or specific projects. There's a steady demand from good companies that need to unlock the equity in their properties. We see a continued opportunity here because we provide a specialised service that helps businesses move forward, often when traditional banks are more cautious.

Your approach seems very hands-on, even providing strategic advice. Why go beyond just lending money?

We believe that providing capital is only part of the solution. We want the businesses we fund to succeed. Sometimes, that means offering our expertise or connecting them with advisors from our network. For example, we helped a manufacturing client improve their operations after they took out a second mortgage for factory automation, which significantly boosted their profits. We aim to be more like partners than just lenders.

Investors are always looking for good returns but also security. What makes investing in loans through Royce Stone Capital an attractive option for them?

Investors are attracted to the consistent returns we've been able to deliver, typically between 11% and 14% annually since 2020. This is paired with strong security—tangible assets back our loans. We also offer something fairly unique: a secondary market platform. This allows investors to trade their loan positions if they need liquidity, which is a big plus in private lending.

Speaking of innovation, some lenders use more technology to improve their services, like Interbridge Mortgages in the UK, which hit a £250m milestone in its first year using tech for speed and transparency. Is Royce Stone Capital also looking at new technologies to enhance its offerings?

Absolutely. Technology is very important. We're currently investing in blockchain-based systems for loan management. The goal is to make settlements even faster and more transparent and to reduce administrative costs. We also use AI-driven tools to help with our documentation processes, making them more efficient and accurate. Staying ahead with technology helps us better serve both borrowers and investors.

You mentioned a very low default rate. What's the secret sauce there? Is it just picking the right borrowers, or is there more to it?

It's a combination of factors. Picking the right borrowers through careful checking is certainly important. But it's also about how we structure the loans, the co-investment I mentioned earlier, and our ongoing monitoring using those economic models. We also run educational programs on financial management for our borrowers, which help them make better decisions. It's a proactive and comprehensive approach to managing risk.

For a business owner who might be hesitant about a second mortgage, perhaps thinking it's a sign of trouble, what would you say to change their perspective?

That's a common misconception. A second mortgage isn't a last resort; it can be a very smart, strategic financial tool. It allows a business to use the equity tied up in its property to fund growth, acquire new assets, or manage cash flow, often without selling shares and diluting ownership. When structured correctly, it's a way to power business expansion.

Looking ahead, what's next for Royce Stone Capital? Are you planning to expand or offer new kinds of financial products?

We're looking to grow. We plan to expand our presence from Melbourne into other major cities like Sydney and Brisbane. We're also developing new types of financial products, such as hybrid solutions that combine elements of second mortgages with revenue-based financing, which is great for businesses in sectors like tech and e-commerce.

Tarek, this has been very informative. For our readers at Stocktwits, whether they're business owners exploring funding options or investors looking for new opportunities, where can they learn more about Royce Stone Capital and your second mortgages?

The best place to start is our website. You'll find detailed information about our second mortgages and how we work. There are also ways to get in touch with our team to discuss specific needs. We're always happy to talk about how we can help businesses achieve their goals.

Tarek Omar's insights show that Royce Stone Capital offers a fresh take on second mortgages. By focusing on speed, custom solutions, and a strong partnership approach, they provide valuable options for Australian businesses needing capital. For investors, the firm presents an opportunity for solid returns backed by careful risk management. In a changing financial world, companies like Royce Stone Capital are demonstrating how innovative thinking can benefit everyone involved.

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