Using Property to Secure Finance
As an investment property has always been a safe long term bet, but, property does not offer much short term liquidity for its value; often in order to access the cash locked up in the investment one needs to sell the property. However, there is an alternative for businesses who need finance and have a property portfolio.
Many business owners that own property are aware of the high value and growth potential it represents, but are unable to easily access that value in cash when needed. Some banks may grant new or further bonds over properties, but this takes a time to get approval.
Trade finance is traditionally geared towards the purchase of stock which is then sold over a specific anticipated term and in so doing allowing the repayment of the short term loan. This unique combination of trade and bridging finance is unique, allowing the securing of funds for all sorts of business requirements.
Typically, business owners will approach us with their business plan outlining what funds are required for and how they plan to repay the loan. We would then look at the viability, track record and structure of the business, with a view to entering into a long term relationship and assistance with ongoing facilities on a transactional basis.
Each transaction is a short term, to a maximum of around nine months but may be as short as 30 days. Flexibility is another feature of this type of transaction that few other financial institutions can offer. If that stacks up, we would look at the property to secure the business facility.
This provides an excellent opportunity for business owners who need funds for growth or to increase stock levels for their business but who do not qualify for more traditional forms of funding. Additionally, private funding houses often allow for tailor made repayment terms according to the needs of the business.
Charges are dependent on the merits of the business and the property, the size of the facility, the size of the transaction, but are certainly market related. The interest payments are filly tax deductible, and possibly, depending on the circumstances, growth in the property may be taxable in terms of capital gains tax, which at say 10% is lower than the 28% deductible in terms of business borrowing.
In addition to the ability of being able to hold onto the property, business owners can also acquire the funds much quicker than they would when having to sell.
This crucial aspect of the package as many businesses require the funding quickly in order to capitalise on market trends on other timing factors. Similarly, the funding required can often be repaid in a relatively short time period, which does not justify the selling of property in the long run.
Selling property to fund short-term business opportunities is not a wise move, so this is an ideal product for business owners with property needing a quick cash injection for business projects whose returns will be realised in the short term.