My bank is telling me that it is still very active in lending in the commercial market but they are not supporting me and my commercial finance broker is struggling to assist me with my business finance. Are banks really being more relaxed with their lending or is this all hype?
Unfortunately banks haven't really loosened their approach to lending that much; but expect to see things change soon. With financial Armageddon avoided and bank reserves heading north, things can only get easier for the business borrower.
Consider however, the other potential solutions that are available to the business borrower.
Let me give you a few scenarios that we have come across in the last few weeks with readers; but first let me explain what a commercial broker can be: By and large (nearly every situation I have seen) a commercial broker offers advice on just commercial finance and there is no requirement under their 'regulator' to be independent, nor are they allowed to give any advice about any financial product you may have such as your self invested personal pension, your investments or tax position. This does not fall within their scope of advice and they are not trained to give this advice.
This is particularly worrying in that a pension is often the best way to buy your commercial property and a residential mortgage can often be the best place to raise deposits or finance yet the commercial broker in the above instance will not be able to assist.
An Independent Financial Adviser is required to give independent financial advice but most importantly they can look at every potential solution as the examples below will show:
A reader called us asking if he could raise cash for his business. He owned his commercial property with a mortgage but his bank would lend him no more. He hated pensions yet his pension fund had nearly enough to buy the property from him. So we used his pension and raised a small mortgage inside his pension so it had enough money to buy his property and he now pays a rent to his own pension. He now has a tiny borrowing within his pension, has £112,000 in his bank account and can communicate rather differently to his bank, who now owe him.
In another situation we had a business owner who had a residential mortgage and he also had a director's loan account within his business. A director's loan account is where the business owes the director money either through capital he injected or through income perhaps he has not taken; but clearly already been taxed on. Directors tend to leave the cash in the account to assist with cash flow.
We advised he take the director's loan account from his business, then repay his personal mortgage. He would then take out the same mortgage and inject back into the business. The net effect is the same in that he now has a mortgage of the same amount and the director's loan account is the same value.
However, because it can be seen that he has injected this cash into the business he will now be able to claim tax relief on the mortgage interest payments. Cute.
All too often business' approach their bank in a position of weakness. For example they approach a bank with too small a deposit and as such the rate and terms are hiked northwards. If they had raised cash through their pension or even against their residential property (often at much more competitive rates) they would be in a position of power to negotiate the best fees and terms.
Furthermore we are now seeing many more foreign banks come to the market place. Of the most active in London are the German and Asian banks with Germany being easily the biggest players. With 85% of all transactions being overseas, it's easy to see why.
I hope that helps but in simple terms make sure you seek Independent advice from someone who can cover all areas in-house.
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