February 2016 - First 4 Commercial

What’s the difference between a commercial and a domestic mortgage?

Although both types of mortgage share similarities a commercial mortgage has a variety of other constituents attached to it. For whatever reason you are applying for a mortgage always speak to a professional advisor and instruct a solicitor who is specifically trained in the property arena. It doesn’t matter if you are a partnership, incorporated business or LLC, any commercial entity can apply for this type of finance.
What is a commercial mortgage?
A commercial mortgage is strictly for the purchase of property or land that is for business use only. If you wanted to build a residential property then this would be strictly prohibited. Likewise this would be the same if you wanted to open a shop somewhere that was residential only.
The repayment structure is also different, there are two components.
• The amortization/loan term of the mortgage is used to calculate the monthly payment.
• The balloon payment is when the borrower either pays off the remaining balance of the loan in full, refinances or sells the property.

What does a lender look for?
• The debt service coverage ratio: this is the ratio between available cash to the loan payment required.
• Loan to value ratio: this is the value of the mortgage compared to the value of the property.
• Whether your business is profitable and stable.
• A lender may want to see the overall business plan, financial statements and any other projections that will affect the cash flow of the company.


What is equity release and is it the right financial choice for you?

Equity release can be a useful financial product if you wish to raise a lump sum of money. Our home is generally the largest asset we have, so being able to release some cash but still retain ownership of the property is a good deal. There are however a few points that you should consider. Always undertake financial advice from a professional and investigate a variety of options. There are a plethora of fiscal products on the market that can benefit you, so spending the time working out which one is for you will save any financial heartache further down the line. These are a few questions that you should ask.
• How will equity release affect your assets?
• Will it affect benefits or tax liability?
• Look at different equity release schemes and products before deciding on one in particular.
• Can a solicitor help and advice you on any legal obligations?
Who can benefit and why?
• It can be a good solution for anyone who has retired and has a substantial amount of equity in their home. If this is the case then a proportion of that money can be released and used as income. The debt is typically repaid after the house is sold, this is usually after the death of the owner.
• There are two types of equity release a ‘lifetime mortgage’ and a ‘home reversion scheme’.
What are the risks?
• You could end up owing money on your home when it is sold.
• Always get professional advice before entering into any financial scheme, after all your home is likely to be your most valuable possession. If the sale of your home is not enough to cover the interest over the lifetime of the scheme then you could lose your home if you cannot meet the required repayments.
• If you default on any repayments then you could be evicted from your own home.


Factoring Criteria – How it can benefit your business.

If you have a business and are looking to expand then factoring offers a convenient financial solution. It differs to other fiscal packages, the criteria for a factoring facility does not rest on the financial status or even performance of your company per se. It looks into the processes of how invoices are raised and the type of business you operate. It’s the debtor book that becomes central rather than assets.
So what is the basic criteria for a factoring facility? In basic terms your business needs to sell to other business, raise invoices for goods or services sold and offer credit terms. Obviously the financial performance of your company and its longevity will be important in the application process. Finding the right factoring company for you is important as there are a myriad of invoice finance companies out there. Some banks operate factoring facilities as do individual companies.
What will a factoring company do?
• Structure a facility that best suits your requirements and financial means.
• Invoice finance can provide you with a percentage of the gross value of your debtor book.
• They will then release a percentage of each invoice that you raise to your customers on an ongoing basis.
• This can be invaluable as it allows a cash flow to run smoothly. Employees and suppliers can be paid on time.
• Further investment can be made into the business as cash flow is consistent. You can concentrate on the core values of the company having peace of mind the financial backbone is being looked after.
• Invoice factoring allows a business to outsource its credit control.
• Invoice discounting is slightly different as it allows a business to retain control of its credit management.


Commercial finance – How can it help you with your business?

Raising extra capital when you run your own business can be a necessity for many reasons. If you feel it is the right time to expand your business or you wish to invest in new premises, having financial options available to you that won’t cripple your bank balance and put your business at jeopardy are paramount. Raising your game and giving your company a fighting chance in this tough fiscal market can be challenging. Securing a commercial mortgage could be a good option. Here are a few guidelines to consider.
What is a commercial mortgage and how does it operate?
• A commercial mortgage is similar to a residential mortgage except that the money borrowed is usually raised against the assets of the company. The charge is normally secured against any property the business may own. However other assets such as vehicles, stock, machinery or computer equipment can be used as collateral against a loan/mortgage.
• Always consider the cost to the business, if your cash flow is inconsistent then regular mortgage payments could cripple you in other ways. If payments are not met then the assets that the commercial mortgage are secured on could be seized and sold.
• Lenders will require evidence showing the validity of the company, trading history and its credit worthiness. Most lenders will expect you to invest some money yourself, the proportion will depend on the lender and the amount being borrowed. It goes without saying that the more money you put down, the more likely you are to secure a mortgage for the remaining amount.
• If the lender has any concerns about the credit rating of the applicant then they may well ask for a guarantor.

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