Business finance criteria in today’s climate has tightened. The bank’s risk appetite is also dependent on which industry the loans would support. Banks are constantly assessing their “risk” in various industries and if transaction is undesirable in that industry, then they would “pass on the transaction”.
As a result, banks are very selective. An example would be the banks’ extreme caution in lending to property developers, specialised securities (i.e. service stations, franchises) and other non-core businesses.
Key questions to ask to when seeking business finance include :-
- Are taxes, superannuation and other statutory payments paid to date?
- Have financial accounts (i.e. balance sheets and profit-and- loss been finalised? (Lenders require a minimum of 2 years of latest financials to assess any business funding).
- Are there any Interim Management Accounts?
- What is the purpose of the finance? i.e. working capital, capital expenditure or debt consolidation?
An experienced finance broker can analyse the financials and requirements to work closely with accountants to structure the funds required. Funds type can then be ‘matched’ to client’s needs.
For commercial property finance, key questions to consider include :-
- What is the rental income?
- What are the terms of current or proposed lease?
- Is there any need for repairs and major works?
- What is the entity of the purchaser, whether company, individual, trust or SMSF?
Whilst major banks are offering competitive pricing for commercial property loans, they often wish to manage the business relationship. This could be an advantage for some clients. However, there are
specialist commercial property financiers who assess the transaction on its merits and do not require an ongoing banking relationship.
When seeking a Commercial Property Loan, borrowers should be aware of ‘notional term’ and ‘standard term’. Some banks use the 15-year standard term to calculate loan payments while committing to an actual term of 1 to 5 years. The loan is amortised over a 15-year term, yet the commitment is only for 5 years.
On expiry, the borrower has to re- apply or re-finance. Some lenders do this as the cost of capital is lower for shorter commitments and they can deliver a lower ‘headline’ rate of interest. Specialist commercial lenders offer loan terms from 15 to 30 years on commercial property and other loan products to suit borrowers’ requirements.
If you need help to secure a business or commercial property loan please talk to Paul today.
Tags: business lending