Residentially-secured business loans
Due to the perceived lower risk of the residential property market, banks will often lend at cheaper rates when a residential security is offered. Often, there is still a premium to be paid due to the business nature of the loan, and the term of the facility may need to be shorter, for example 15 years instead of 30. This can be a hurdle as a borrower would need to evidence adequate ongoing income the payout the loan in a shorter time frame.
Unknown to many is the fact that there are 4 lenders who do not really care if the credit you seek is for a personal, investment or indeed business purpose. These banks do not differentiate between a normal home loan and a business loan as long as residential security is offered, meaning generous terms and discounted rates. This is quite fascinating. Most borrowers who have gone straight to their bank without seeking the advice of a lending specialist may end unnecessarily paying establishment fees, monthly fees and a higher rate than they need to, under stricter terms. A 2% differential on a $2M loan is $40,000 per annum!
Commercially-secured business loans
Lending against a commercial property, whether it is to purchase a property or for another purpose, is generally a little more expensive due to the perceived higher risk of the commercial property market. The standard LVR of 80% for residentially secured loans is also reduced, to 75% or 70%. The differential between LVR's and rates amongst the banks are huge.
There are some lenders now in the sub-$5M space whose rates are just about the same as home loans, especially for fixed rate loans. Some of the smaller banks offer extremely generous deals for lending against non-specialised properties such as warehouses, office space, industrial property or retail space.
When it comes to specialised properties such as childcare centres, petrol stations shopping centres and hotels it's normally the big banks that are best equipped to lend against these properties. Nevertheless, certain banks are far better than others for certain types of lending and borrowers are advised to understand the differences. The larger banks often provide finance which is subject to annual reviews and covenants that must be adhered to, which are great to avoid if you can.
iChoice CEO Jason Khoury has held management roles in 4 commercial banks and has a wealth of knowledge in this field as well as exceptional banking contacts. All iChoice lenders are trained and mentored by Jason.
What most do not know, is that there are 1 or 2 lenders who will consider extending discounted home loans against commercially-zoned properties, such as shop-top housing. Whilst the LVR is slightly reduced, it's a much cheaper option than a commercial loan. It's a shame that hardly anyone knows that this is available, although we do enjoy the look on our clients faces when we advise them.
Overdrafts are often used by businesses to manage their short-term fluctuating needs, and are normally offered subject to annual reviews or even more regular reporting. Banks love to provide them because of the higher rates and line fees they can generate. Clients with a residentially-secured overdraft have generally been poorly advised. There are better ways.
Some lenders specialise in lending to certain pre-approved franchises. Borrowers buying well-branded franchises like a Australia Post, KFC or Michelle's Patisserie can get loans secured by the 'business-value', normally up to 60% of the value/ Purchase Price.
Debtor Finance (or Invoice Discounting) is very popular in the UK and getting there here in Australia. Banks can provide a business with an overdraft, the limit of which constantly changes so that it reflects 80% of what is owed to you. Therefore there are regular reporting requirements. The banks operate quite differently and view some industries more favourably than others. Debtor Finance is a great was for expanding businesses to meet the increased working capital requirements that growth delivers. It's normally a facility considered by business when there is no more 'bricks and mortar' security to offer.
iChoice CEO sees DF as a growth area once businesses understand the way this type of financing is offered these days (far different to the old Factoring). Remember, many businesses fold due to rapid expansion.
Banks generally have specialised Property departments which lend to property developers. They will require a detailed valuation of the end-value of any project and also a detailed costing by a Quantity Surveyor, so the funding can be drawn down in line with the stage of construction. Whether the construction is executed by the borrower or a contract builder, the bank will need to have comfort that the project can be delivered with time and budget. Banks will assess the construction risk, developer risk, liquidity risk and market risk as well as the capacity for the developer to service the remaining loan if not all dwellings have been sold at completion. The analysis of these risks will determine the banks appetite for the transaction, margin and fees, as well as LVR and pre-sale requirements.
iChoice CEO Jason Khoury was a specialised development funder for 5 years and has several contacts in this field in the major banks and extending to property lawyers, valuers and surveyors.
Plant & Equipment Finance
Most businesses have capital requirements and like to finance plant and equipment. These days, asset finance is not expensive and quite simple. For most facilities under $150,000, lenders will not even need financials information for established businesses. iChoice founder Martin Khoury, former aerobatics instructor and commercial airline pilot, heads up iChoice Aircraft Finance
iChoice is well connected in this vastly expanding field. Those who may not have the time or ability to meet banks requirements can seek funding through private channels by offering either first or second mortgages over property. The LVR is normally reduced to protect the lender and the interest rates higher due to the perceived risk. Having said that, many of the big-hitters in Australia need short term funding for projects and don't want to deal with the banks, happily absorb the higher costs to free their activities.
The 'Private Money' field can be a bit tricky and borrowers must be well advised.