Business & Commercial Loans

Many of our commercial/business clients chose to purchase a block of land and either build their purpose built premises , or build investment commercial property .

Construction loans are far more involved than loans to purchase established commercial property , but let Better Choice help you navigate the financing minefield that it can be .

More often than not, initially you will have two loans, i.e. one loan for the land and one loan to construct the commercial property .

On completion of the property, you may wish to consolidate the 2 loans into 1. During the construction phase, the lender will control the release of funds to the builder. That is, at each stage, (usually 4-5) when the builder requires payment, the invoice will be sent to the bank for payment. The bank will seek the borrowers authorisation before payment.

As the construction loan is drawn down in stages, you, the borrower, only pay interest on what is outstanding.

Generally, construction loans are only available on a variable rate.

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FRBL’s are just that.  That is, the interest rate will not rise or fall during the fixed rate term.  You can fix the rate anywhere from 1 to 5 years.  We strongly advise our clients to carefully consider the pros and cons of FRBL before they opt for this loan type.  The penalties to exit a FRBL early can run into tens of thousands of dollars.

FRBL’s are less flexible that variable loans, i.e.

In the main, you are extremely limited in how much you can make in extra repayments

To counteract the draw backs of FRBL’s, we suggest the borrower may wish to consider a combo loan- part fixed and part variable. Ask us about our Combo Loans.

FRBL’s are perfect for investment property purchase.

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Security and flexibility

Want the security of knowing that your interest rates will not increase for up to 10 years, but don’t want to sacrifice all the great flexibility of a variable loan?

Then we suggest you apply for a ‘Combo Loan’, i.e. fix the interest rate on part of your loan for up to 10 years, and leave the other portion of the loan on a variable interest rate.

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Are you self-employed and at times have difficulty proving your income? If this is the case, then you may consider an Alt Doc Loan for your funding needs.

Instead of having to provide the lender with reams of paperwork justifying your income, you generally need to provide the Lender with 2 of the following 3 pieces of financial data , i.e.

• Declaration from the Accountant .
• Last 2 BAS statements
• Last 6 months business bank account statements .

Other lending criteria associated with Alt Doc Loans include:

1. Possession of registered ABN (Self-employed borrowers)
2. Minimum 2 years self-employed (Self-employed borrowers)
3. A clear credit history
4. 20% equity in the real estate transaction

Should your situation not qualify for the Alt Doc policy set-out above, rest assured Alt Doc may assess borrowers who have been self-employed for less than 2 years or whose credit rating is less than squeaky clean.

Alt Doc lenders can also lend to payout tax debt and credit defaults

Quite often borrowers will take up a Alt Doc loan for 2-3 years, get their affairs in order and then refinance to a main stream lender.

Better Choice strongly recommends that borrowers seek independent legal and financial advice prior to taking out an Alt Doc Loan.

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It is common that business/commercial customers are not charged a standard interest rate by the lenders.  Most lenders formulate an interest rate by charging a base rate, e.g. 90 day bank bill rate or 3 year swap rate plus a risk margin.

The lender does a risk assessment on you & your businesses financial circumstances and applies a risk margin to the wholesale rate.

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Standard business/commercial loans with a loan term ranging from 1 year to 25 years.

A 20 year term is common within business/commercial lending whereas a 25 year term may be a policy exception .  The term of the loan can be based upon:

• The term of the lease you have on your commercial premises
• The term of your franchise arrangement

Interest only terms are available and can range from 1-5 years.

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Flexible working capital facility where the loan proceeds are available ‘at call’.  As business income maybe “ lumpy “ your business may require differing levels of capital to function at different times of the month or year . This may be as a result of the peaks and troughs in business activity and/or how often your debtors pay.

The loan proceeds can be drawn down, utilised, paid back over and over again.  You only pay interest on the facility you are using at any point in time.  Some lenders do charge an unused limit fee.

A lending facility catering for short term requirements which the lender will want to see drawn down and paid back over and over.  If the debt becomes “hard core” it should be refinanced as a term loan.

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An international finance instrument that enables Australian importers to pay for goods they are purchasing from overseas.

A LC from a reputable, recognised bank is deemed to be solid security.  An LC is an international promise to pay note.

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Much like an LC, a bank guarantee is a promissory note.  Whoever the bank guarantee is in favour of, the bank guarantees to pay them the amount of the guarantee if the client does not pay the funds, or provide their services to a satisfactory level.  Bank guarantees are used domestically within Australia.

Bank guarantees are common place:

• Guarantee the payment of rent of a commercial lease
• Commercial developers guarantees to ensure quality product and defect rectification.

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Many businesses offer their clients payments terms , i.e. the client can pay the provider of the goods or services within 30, 60 or 90 days from delivery of the goods or services.

These are the business’s ‘debtors’.  It is not unusual for debtors to not pay the monies owed in a timely fashion.  Therefore the supplier of the goods may be owed many thousands of dollars from the debtors who are ‘tardy’ payers.

Clients experiencing working capital issues may choose to ‘sell’ their debtors to a lender, who will typically forward to the client up to 80% of what the debtors owe in one lump sum.  The lender and the client will then set out to have the debtors pay their monies owed.

Debtors finance has a vital role to play within the business/commercial field, but it is an expensive form of finance.

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All of your point of sale credit cards and eftpos equipment and services.