Is a recession a good time to borrow for your business? What should businesses be making their main financial priority in the current economy? What are some top tips for preparing your business to borrow? What are the benefits of going with a mortgage advisor (broker) over borrowing from a bank?
John McKinley, Residential and Commercial Mortgage Adviser from Vega answers all these questions and more…
#1. What are your predictions for this coming economic year?
Some of the costs today appear to be inflated, hopefully, that will be reduced with less demand. We have lived in an era of interest rates that were unjustifiably low and quantitative easing, both inflationary and causing asset bubbles which we are now paying the price for. We have a balance of payments issues and as a result, could face a credit rating downgrade. I expect rates will level off shortly, but it remains unknown as to how quickly. Whichever party(ies) forms the next Government, they will need to be fiscally responsible to curb inflation but also spend money where it’s needed, i.e., health, education, and infrastructure. And as for the Reserve Bank, well, I expect the actions of the Australian Reserve Bank who acted appropriately, not only this time but prior to the GFC, will take the foot off the rate hike pedal.
#2. What should businesses be making their main priority in the current economy?
· Liquidity, make sure you have adequate reserves.
· Make sure Gross Margin and expenses are under control and review.
· Make sure you are not susceptible to one large slow-paying debtor.
· Keep tax up to date or talk it over with your accountant.
· Always retain capital in your business, it will be hard for anyone to help you if you are insolvent.
#3. What are your top tips for preparing your business/finances if you’re looking to borrow?
· Have a plan and review it regularly.
· Have good financial reporting so you can show your financial adviser/banker that you are actually in control of your finances and that you have a handle on your future cash-flow requirements.
· Seek advice from professionals before approaching your bank/adviser. Sound out your proposal if you are not sure.
· Keep your PAYE, GST, and taxes up to date. It makes it harder for any institution to assist you if you are in arrears, it’s also a slippery slope.
· Cash flow projections need to be accompanied by valid assumptions. Keep your expenses in proportion to your income and keep an eye on your Gross Income ratio.
#4. What are banks asking for in terms of security?
Banks prefer to be secured by residential property and invariably personal guarantees. The reward for the client is that they receive a lower rate and longer terms, which can help cash flow. If borrowing unsecured, the Bank will still need guarantees and a General Security Agreement (charge over assets of the company), with your capital input usually at least matching the Bank’s involvement.
#5. What are your tips on how to negotiate terms?
Know the market, check sites like interest.co.nz, and ask around. Even then Banks normally have a discretionary rate below their special rate. With Vega Mortgages, being part of a large group of brokers, we are often privy to market intelligence of what has been offered (sometimes substantially below advertised) and have access to this information almost instantly.
#6. What are the benefits of going with a mortgage adviser (broker) over borrowing from a bank?
There are good bankers and good advisers. Over the years, experience levels have dropped at banks, and it has been harder to make an appointment or get hold of the appropriate banker, sometimes you may need to deal with more than one banker for the same deal or it gets passed between staff. You may not be able to meet your banker, or they won’t visit your premises. Your adviser should be able to meet you at a place of your choice and will be the same person the next time you need some assistance. Your adviser’s remuneration is result based.
#7. Is there anything else you’d like to add?
For myself personally, I do enjoy meeting people, understanding their business, and helping them along their financial journey. As times become tougher, this help is more critical and another set of eyes could be a plus. Being part of a large network puts me in a position where I can access many different lenders both in the commercial and residential spheres. With my past banking experience and being part of a large network, I can help clients with their home loans, business, and commercial requirements.
Vega was launched to overcome the shortcomings of large financial institutions where people were reduced to numbers through credit score risks and statistics. Vega Advisers aim to personally understand each client’s needs and put the human relationship back into the equation. They believe there is a better way to solve the lending process for customers. For more top tips visit their website. To get in touch with John direct email: john.mckinley@vegalend.co.nz.
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