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Financing
Your Steel Building Projects |
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Banks
and loan institutions are in the
business of lending money: they
are not in the business of
repossessing things. For this
reason one needs to give the
bank or institution lots and
lots of documentation to place
them in their comfort
zone. |
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Let's
face it, far more loans have
been turned down from lack of
information than from too much
information. And by providing
all the required information,
you'll help speed up the loan
process.
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One
of the biggest mistakes that most
consumers make is to only contact one
lender. Consider this - would you only
go to one dealership if you were buying
a second hand car? Mortgages, like car
prices, are negotiable. You need to shop
for a mortgage and request comparable
quotes from various lending
institutions. By shopping your loan
with different lenders and
negotiating the rate, you can get the
best possible loan and save lots and
lots of money.
Whether
you intend raising finance for a home or
a commercial venture, and whether you
intend dealing with a commercial bank,
private individual, building society,
mutual fund, insurance company, and/ or
a pension fund, rest assured they are
going to require their protection
secured by a mortgage on the property
(and/ or some part of another property)
or by other substantial protections. Furthermore,
it
is not enough to simply satisfy
the potential mortgagee (lender) that
the property is worth more than the
amount that will be outstanding. They
are going to need comfort in your
ability to repay without any
problems.
If
you're an individual borrowing to
finance a home the
lender generally looks at things like:
•
How long you've lived at your current
address
•
Your job or profession and how long
you've been in it
•
Your financial obligations
(debt-to-income ratio)
•
Any late payments
•
The amount of credit you have
outstanding
•
The amount of credit you are using
•
The amount of time you've had credit
established
They
also take into account current balances
on accounts, too few bank revolving
accounts, too many bank revolving
accounts, number of accounts with
balances, number of accounts opened in
the last 12 months, length of time
accounts have been established, amount
of past due accounts, number of
delinquent accounts, too few accounts
rated "current," recent
derogatory public record of collection,
past due balances, number of credit
inquiries made and so on. In fact, it's
often been said that you
have to prove to them that you do not
actually need the funds before they'll
consider giving you the loan!
Clearly
reflecting your ability to repay is
very, very important when borrowing
money to help finance items of a capital
nature (like a building) - lenders
actually prefer to invest their money in
assets that will generate income, such
as working capital. After all, they are
in the business of lending money, they
are not in the business of repossessing
things. In
fact, all lenders want exactly
what you want - a smooth, successful,
no-hassle transaction. |
Here
are some typical questions that will be going
through the banker's (lender's) mind as he or
she talks to you about company finance:
-
How
much money do you want and what do you need
it for?
-
Is
your business profitable enough, and does it
have enough cash flow to service the debt?
(a detailed cash flow projection will need
to be prepared).
-
Is
there a reasonable balance between debt and
equity? (the bank will only take risks if
you do and like the entrepreneur to be at
risk as well. After all, why should they
take all the risk?).
-
Does
your business have enough collateral to
cover the loan?
-
What
backup options have you got if something
goes wrong in the business?
-
What
are the risks associated with the industry
in which you are involved?
-
What
does it take to succeed in this type of
company?
-
What
is the growth potential for the business?
-
Is
the location appropriate?
-
How
do you plan to, or compete, against the
other businesses in your industry?
-
What
are your and your business's strengths and
weaknesses?
-
Do
you have reasonable working experience in
this field?
-
Do
you have the skills and background
necessary?
-
Is
there a large enough market for your
products/services?
The
banker will also be wondering:
If
I ever needed to sell this business,
-
Where
would I be able to find a potential buyer
willing to pay a premium for this business?
-
Is
there any untapped potential for the
business that a new owner could take
advantage of?
-
If
the new owner had more capital, could the
business grow more rapidly?
-
Are
there new markets that could be entered?
-
Could
costs be reduced and therefore profits
increased?
Here
are some tips to help convince the
cash-conscious banker or lender
-
Have
a sound business plan which should include
detailed and conservative financial
projections, including pro-forma income
statements, balance sheets and cash flow
forecasts.
-
Invest
your money - show that you are taking risks
too. The more you invest, the less risky the
bank will perceive the venture to be, and
the less conditions and collateral will be
attached to the loan.
When
presenting your loan application to the banker,
it is important to:
-
Present
yourself professionally and punctually at
the interview.
-
Learn
the language of finance - surprisingly few
entrepreneurs can speak it, so the
financially literate entrepreneur has a real
competitive advantage in the market for
finance.
-
Make
sure you are familiar with the contents of
your business plan, especially if your
accountant prepared most of the figures for
you. If you are not confident to present the
figures alone, take your accountant with
you.
-
Be
open and frank during the interview.
-
Remember
you are trying to sell yourself and your
business to the financer, so be confident,
enthusiastic and well prepared to justify
your request for the loan.
Here
are some key issues for loans:
-
Due
date for payment: You
need to formulate a reasonable schedule of
payments according to your cash flow
forecast.
-
Interest
payments: You
need to ensure that your debt servicing
levels are acceptable to both your business
and your bankers.
-
Loan
fees: Some
loans and overdraft facilities require the
payment of upfront establishment fees. Be
sure that you know the details and factor
this into your cost of financing.
-
Defaults:
Find
out what procedures are adopted by the bank
or institution in the event of defaults.
-
Collaterals:
Find
out what additional security (other than the
mortgage) the bank or lender will require to
entertain the loan.
-
Co-signers
and Guarantors: Many
financial institutions will require that
someone of good standing signs a personal
guarantee for the debts of a small business.
You need to get clarity on this early in the
negotiations - you don't want to be running
around looking for personal guarantors when
everything else is already in place.
-
Types
of collateral / security:
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Accounts
receivable i.e. cession of debtors.
-
Real
estate and buildings - often the only
fall-back security available is in the form
of a personal guarantee backed by assets,
usually the family home. This can have the
effect of wiping out the advantages of any
type of limited liability.
-
Savings
/ investment accounts
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Insurance
policies
-
Merchandise
and inventory
-
Equipment
and vehicles
-
Guarantees
from third parties
-
Shares
and Unit trusts
Here
are some hints on Mortgage Bonds
The
traditional mortgage is of the repayment type,
where the capital and interest are repaid
by regular, fixed payments (but are usually
subject to changes in interest rates) over a
period of, for example, 20 or 25 years. During
the early years of the mortgage, the capital
amount owed on the mortgage decreases relatively
slowly as the bulk of the monthly payment
consists of interest. The closer to the end of
the mortgage period, the greater the reduction
of the capital amount being repaid.
Mortgage
loans may be at a fixed or a variable interest
rate. With fixed rate mortgages the
interest rate remains constant through the life
of the mortgage term.
Consequently you know
what your payment will be for the life of the
loan and you can budget more easily, without any
fear or anxiety of your mortgage payment
suddenly becoming unaffordable. On the downside
is the fact that you'll be paying more as the
initial interest rate is higher than that of
variable mortgages.
Variable
rates make mortgagers vulnerable to fluctuations
in interest rates as even small changes in the
mortgage rate can have a big effect on the
outgoings of those with large mortgages. Variable
Interest Rate Mortgages normally have an initial
interest rate lower than fixed rates but will
adjust upward (unless rates really fall). They
may be a very good choice if you are sure that
you will not be owning the property for an
extended period (more than 5-7 years) of time.
Terms:
15, 20 or 30 years
You should go for the shortest term possible.
The interest savings are enormous as the term
decreases. Always make a comparison between a 15
year term payment and a 30 year term payment.
The difference is often surprisingly smaller
than anticipated. The savings over the term of
the loan, however, can be substantial. For
example, comparing a 15 year term to a 30 year
term, R100,000 mortgage at an 8 1/2% fixed rate
yields the following results:
Principal
and Interest Payment (per month)
15 Year: R985
30 Year: R769
Total paid over term in capital and interest
15 Year: R177,300
30 Year: R276,840
Total interest over term
15 Year: R77,300
30 Year: R176,840
HINT:
If you just
can't qualify or afford a shorter term try to
add at least the amount of 1 additional payment
per year--this will knock nearly 10 years off a
30 year loan.
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Our
focus is the provision of a total service to you - from inception
to successful completion of your building project.
We
have your interests at heart, and you'll benefit from
our knowledge and expertise.
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Bresbou Construction
CC, Pendulum Construction CC,
Building
- The Trust Consortium CC and Universal Coverings (Pty) Ltd
Tel:
+27 11 453 4401
Cell:
+27 84 303 8179
Fax:
086 640 4667 (Local SA Faxes ONLY)
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