Seven tips for securing a business loan

Securing a business loan in Australia isn’t necessarily difficult but knowing how to navigate your way can be the difference between success and failure.

Banks and other financial institutions offer a wide range of business finance options, from commercial property loans, commercial vehicle leases, and commercial and equipment leases, to simpler options such as letters of credit, overdrafts and lines of credit. Here are some tips on how to improve your chances of success.

  1.    Work out what is realistic

It’s a good idea to find and compare credit options based on the amount of money you need to borrow, how you want it supplied and the type of security you want to provide (residential, non-residential or none at all).

  1.    Find a Finance Broker

The next step is to speak to an MFAA accredited finance broker, who can help you work out what loan type and lender are appropriate for your business and you. finance brokers work with clients to determine their borrowing needs and abilities, select a loan suited to their circumstances and manage the process through to settlement. They also do a lot of the legal and other paperwork, they have access to a wide range of loans and are experts in the area.

  1.    Have a credit history and make it good

Lenders are looking for two things when it comes to your credit status: an existing credit relationship and a relatively clear history. If a borrower already has an existing loan which they’re servicing on time, they are much more likely to be successful. Of course, there are options for those who are either credit impaired or just don’t have a documented credit history, and a finance broker can help clarify these.

  1.    Actively show how risk will be minimised

Demonstrate how you will lessen the risk to you and to the lender. Your finance broker can help.

  1.    Be prepared

For your first meeting with your finance broker, have up-to-date paperwork and tax records, make sure you’ve done your research and have a fair idea how much you want to borrow and how you plan to spend it. You should also know your total worth, listing your assets and liabilities.

  1.    Have a plan

Lenders like to see a business plan that shows that you know what you want to achieve and have a clear idea of how you can achieve it.

  1.    Provide more than one exit strategy

Lenders want to know how they’re going to get their money back and some want up to three scenarios for what is called the ‘exit strategy’.

To give your business a good chance of success, talk to the team at Indigo Finance about finding the right commercial financing options for you.

 

First meeting with a broker

If you’re looking for a home loan but are inexperienced with finance brokers, attending your first appointment with a broker can be a nervous experience. Getting a home loan, after all, can be quite complex for a first-timer. There are lots of brokers around and there is a lot to learn. But there are many steps you can take to be confident that your appointment will be a success.

A good starting point is to familiarise yourself with the expectations of the first appointment between brokers and yourself. Your broker is very likely to ask you about your medium and long-term financial goals, the amount you want to borrow, comparisons of your home loan options and your understanding of the fees, costs and conditions attached to home loans. Knowing the direction the appointment will likely take lets you participate more actively in the conversation. This means you can better articulate your needs to your broker.

It’s also recommended that you give some consideration before the meeting to the types of questions you wish to ask your broker. Questions that can be of use include such things as loan types (such as term, repayment options and interest rate types), the types of ongoing fees attached to various loans (such as early exit, late payment, break and redraw fees) and the typical timeframe for a loan settlement.

These questions might pop into your head spontaneously during the meeting but preparing them in advance is a good way to refine them. By doing so, you are in a position to get more specific information from your broker.

It is common practice, too, for your broker to conduct a needs assessment prior to your face-to-face appointment – so you may be asked some pre-appointment questions.  To assist in answering these, you’ll need to supply information about your employment history, assets and expenses.

At the appointment it will save you time and effort to prepare and then bring the required documentation with you. This can include ID, transaction histories, tax returns, rental income statements and borrowing documents such as “contract of sale” and proof that you have the deposit for a property. It’s mandatory for brokers to maintain the confidentiality of information that you provide to them and only pass on information necessary to enable them to lodge your loan application or where required by law.

Call us today to schedule your first meeting with us!!

 

 

Investing interstate….

Investing interstate

When people think of buying an investment property, many only think locally. Investing in a property interstate could possibly be a smarter idea, potentially resulting in a better return on your investment. It may also be a potential way to snaffle a bargain. You could be buying into an area with greater potential capital growth compared to your home state – as each state reaches different stages of the property cycle at different points.

2015 figures from LJ Hooker’s Investor/Tenant Survey indicated only 14 percent of Australian investors surveyed own an interstate investment property.

Some of the key issues to keep in mind include:

The logistics of property management

Some may find it hard to manage their investment property from another state. It can be costly maintaining a property and finding tenants if you regularly need to travel between states. Although employing a property management service may be able to help here.

Property managers undertake several jobs that can be difficult for an interstate investor to do. They can screen your tenants, source the best local tradespeople for repairs and, by inspecting the property on your behalf; can save you the expense of flights for site visits.

While you may be recommended a property manager by your real estate agent, it’s a good idea to shop around, given there’s usually some variation in the nature and quality of the service that managers provide.

Some, for example, might provide an annual market rent review but others might go to the next level and give you feedback on how you can optimise the rental income on your interstate investment. Not all property managers will be as effective at managing the property or screening tenants – while others could be better qualified and so the fee they charge for their services could vary.

Get a pre-approval

Pre-approval is important because it informs you about barriers you can encounter when you seek to arrange finance for an interstate investment.

Certain lenders can be restrictive in the terms and conditions they attach to loan approvals in different parts of the country.

The location of the property could impact the amount you can borrow from a lender – and it’s important to remember different states have different fees and taxes.

Getting a pre-approval can give you the confidence you need to make a sound investment decision.

Visiting the property

Visiting the property and seeing it is more telling than simply viewing pictures. But the travel and cost associated with investing in interstate property obviously imposes limits on the time you can spend seeing the property.

A buyer’s agent is one potential fix, but it’s costly to pay a buyer’s agent to tell you a property is potentially a poor investment once, let alone several times. Likewise, it’s expensive to make the discovery yourself after you shell out for flights and associated travel expenses, so it pays to research the property and area as diligently as possible prior to undertaking closer physical checks.

The internet is a great source of valuable information, including property guides and market updates.

As with any property, local or interstate, there are pros and cons and you need to conduct your due diligence to ensure you make a good decision.

To decide if interstate property is a suitable investment for you, it’s worthwhile consulting with us about the considerations to be mindful of before applying for finance.

When you’re confident you’ve identified a suitable interstate investment property, our team will be on hand to support you to get an appropriate loan for your needs.

Our household energy rules

Heating and cooling

  • Close doors to unused rooms
  • Close curtains or window shades
  • Use blankets, electric blankets, wheat bags or hot water bottles instead of heating the room
  • Clean your air conditioner or cooler so it doesn’t take as much energy to run
  • Turn off heating or cooling when you are not home and overnight

The family room

  • Switch off appliances at the wall
  • Use a power board
  • Use lamps or spotlights
  • Use energy-saving globes
  • Turn off lights you are not using

Kitchen

  • Use microwave instead of an oven
  • Stove-top – keep lids on to reduce the amount of time and energy used
  • Dishwasher – use the economy cycle and only when full

Laundry

  • Only wash when you have a full load
  • Use a clothesline whenever possible

Bathroom

  • Install water-saving shower heads, shorten showers, set the hot water temperature to 50 degrees.
  • Appliances – switch off when not in use

Outside

  • Use timers and sensors for lighting
  • Solar – for garden and outdoor areas
  • Use separate lights for different areas

If you only knew the truth about your interest rate…

At a time of almost constant changes in the finance world – and an absolute overload of information online – it’s easy to see why some consumers are becoming ‘switched off’.

A recent study about financial literacy found 36% of respondents didn’t realise if they reduced the length of their loan they would also have reduced the amount of interest they paid! It also found 35% had done nothing to educate themselves on banking products and services.

What does that tell us? Well…

It tells us there are potentially a LOT of people who could be enjoying savings on their home loan AND other loan products – if only they knew how.

So how important is financial literacy? Let’s face it, many of us find the ever changing world of finance and banking complex. And yes… pretty dull. But a lack of interest in educating ourselves about our home loan – usually the BIGGEST financial commitment we have – is often costing us money!

It’s interesting that the same survey found 74% of us don’t know what a comparison rate is…

Do you? And what SHOULD you know?

Comparison rates

Lenders are legally required to display a comparison rate
when advertising most loans.

This is a tool to help identify the true cost of a loan by combining all components into a single percentage rate*. It also takes into account loans with a lower introductory rate that reverts to a different interest rate after a set period of
time.

It includes:

• the loan amount
• the loan term
• the repayment frequency
• the interest rate, and
• the fees and charges connected with the loan**

For example at the time of writing this article, one lender was advertising an interest rate of 4.44%., but the comparison rate was 5.49%. Now that’s a difference of $1,050 interest each year for every $100,000 of borrowing you have. That is a little over $4,100² per annum on the average Australian loan.

The mandatory comparison rate was initially introduced to stop lenders advertising very low interest rates that lured borrowers into loans that actually ended up costing more than they expected. A low rate may look attractive at first glance but it doesn’t always mean it is the cheapest rate.

While the comparison rate can be used as a guide it is also important to consider the features of the loan and how these may benefit your particular circumstances and future goals. The rate alone should NOT be your sole consideration when obtaining finance.

Remember, whether you are looking to buy your first home, upgrade, downsize, refinance, invest in property or even buying a new car, as your finance specialist it is our job to do the research for you to determine the loan product most suitable for your circumstances.

Mortgage brokers now account for more than 50% of the home loan market. There is a good reason for that! We have to constantly adapt with the times, the lending policies and the changing finance market to provide more than just a loan
service.

We are your finance concierge, educator, confidant and specialist working for YOUR best finance options without the trickery of advertising low interest rates as a lure for your business.

If you are thinking of reviewing your current loan – DON’T do
it alone!

Our role as your finance specialist is to help you make the best financial decision for your personal situation. We consider factors such as:

• how long you are planning on having the loan
• your employment status, age and financial position
• what job/personal circumstances may be happening in
your future
• your family situation and potential future financial expenses (known and unforeseen)

AND we look at more than one lender for your solution.

Call us TODAY. We’re here to answer any financial queries you may have.

10 Steps to successful property investment

Property has been considered a popular path to wealth creation for Australians for many years. It has the potential to generate capital growth (an increase in the value of your asset) as well as rental income. There are also tax advantages associated with negative gearing. However, when buying an investment property it is wise to remember that you are making a business decision and it’s worth taking the time to plan.

1. Do your homework

You are not buying from the heart, but from the head, so it is important to assess your current financial position. What are your cash reserves and what equity do you have in your present home? Look at your long term objectives and factor in potential changes to your current situation (eg. the birth of a child or the loss of one income).

2. Understand negative vs positive gearing

Positively geared properties – rental income is higher than your loan repayments and outgoings. Tax is likely to be payable on the net income. Negatively geared properties – rental income is less than your loan repayments and outgoings. The loss can be offset against other income earned, reducing your assessable income and therefore your tax payable.

3. Decide how to fund it

You’ll probably need a property investment loan. The deposit can come from your savings or alternatively from equity in the home you live in. It can also be possible to invest in property via a self managed superannuation fund.

4. Choose the right loan

There are generally two types of loans: ‘principal and interest’ and ‘interest only’. Interest only loans defer the obligation to repay the principal. The best loan type will be dependent upon your individual circumstances so it is best to talk to us.

5. Find out how much you can borrow

This is an essential step to be realistic in your expectations and focus your property hunting time on properties you can afford.

6. Calculate your up-front costs

Remember to factor stamp duty, loan application fees and legal costs into your plans. A building and pest inspection is also a must to avoid expensive headaches down the track.

7. Estimate ongoing costs

All properties incur ongoing expenses (eg rates, insurance etc). You’ll use your rental income to cover most or all of these but you might need to have some spare cash set aside until you start receiving rent (most agents pay the owner at the end of each month so you won’t receive rental income straight away).

8. Finding the right property

This is obviously the area in which you will spend the most time. It doesn’t have to be a home you would live in. Think about which features are universally appealing and of course remember the old adage – location, location, location!

9. Find a good property manager

It could be a good idea to look for personal recommendations from tenants and landlords you may know.

10. Cover yourself with suitable insurances

Some insurance companies now combine building cover with specialist landlord insurance. You should also consider life, tpd and income protection insurance to ensure your family doesn’t suffer financial hardship repaying loans if the main income earner is unable to work.

 

Energy costs…our greatest financial grief

Average annual electricity bills in Australia hover around $1,600 per state, even hitting as high as almost $2,000 in South Australia.

For example, a family of five’s average annual electricity bills can climb to as much as $2,576.28.

Our varying Aussie climate coupled with a growing population place increased demand on energy use.

Q. How do you compare? Your energy bill may hold the answer

Most electricity providers publish helpful information on your bill statements including power used, what it costs and how your usage compares to customers in your area.

Q. What are the main factors that determine the average cost?

Electricity usage – how often energy efficient appliances and higher energy consuming appliances, such as clothes dryers and air conditioners, are used.

Electricity prices – the price you pay for power, along with the usage, will determine your overall costs.

Canstar blue, an online comparison site, offers an electricity comparison tool to help you get the best deal possible.

The power is in your hands (pardon the pun) to reduce your energy bills:

1. Get the best deal possible, and
2. Control your energy usage!

Q. How can you control your energy usage?

These tips from Energy Australia could help make a difference to your next energy bill.

Heating and cooling

Reduce the energy you use by

• Closing doors to unused rooms.

• Closing curtains or window shades.

• Using blankets, electric blankets, wheat bags or hot water bottles instead of heating the room.

• Cleaning your air conditioner or cooler so it doesn’t need as much energy to run.

• Turning off heating or cooling when you are not home and overnight.

The family room

Switch off appliances at the wall – appliances still use energy in standby mode.

Use a power board – switch off all appliances with the one switch.

Use lamps or spotlights – use these small amounts of light instead of main lights.

Use energy-saving globes – change old globes to fluorescent ones.

Too many lights on – turn off lights you are not using.

Kitchen

Microwave oven – uses less energy than an oven.

Stovetop – keep lids on to reduce the amount of time and energy used.

Dishwasher – use the economy cycle and only when full.

Laundry

Washer or dryer – only use with a full load. Use a clothesline instead of dryer whenever possible.

Bathroom

Water use – install water-saving showerheads, shorten showers, set the hot water temperature to 50 degrees.

Appliances – switch off when not in use.

Outside

Timers and sensors – to light outside areas.

Solar – for garden and outdoor areas.

Lighting – separate the lights to choose which areas to light.

Create good habits

Many of us set financial budgets to help manage our cash flow. We can take the same approach to our energy bills:

1. Set an energy spend in your yearly budget and track your spend

2. Make some of the changes mentioned to reduce your bills

3. Review your energy bills on a regular basis to keep on track

With smart budgeting and energy saving tips, you can manage your cash flow and put more dollars back in YOUR pocket.

Planning for your future is just as important as managing your budget and household expenses.

Call the office for your very own ‘Our Household energy rules poster’

Ease your investment property cashflow burden

Get them NOW – your investment property tax returns on pay day

Whether you are a first time property investor or a property portfolio owner, cash flow is critical. There are many ongoing, and sometimes surprising, costs associated with holding investment properties.

Numerous unending costs include insurance, body corporate/strata fees, council and water rates, property management fees, land tax, maintenance and repairs.

Let’s not forget other challenges of managing property investment cash flow:

• Vacancies – there may be times when your property is not tenanted and you may have to cover the costs yourself
• Interest rates – if interest rates rise, larger repayments could widen your income versus expenses gap

Plus there are considerations at the time of buying and selling such as entry and exit costs and property valuation fees.

Can you afford a cash flow shortfall?

Managing your income (rent from your tenant) versus your expenses is important in managing your overall surplus or shortfall.

As reported by CoreLogic in their ’25 years of housing trends report’ as of March 2018, property investors were 42.8% of the mortgage demand – more than double the proportion of 25 years ago. Now that’s a lot of investors having to manage their cash flow.

If you have negatively geared properties in your property portfolio (where the income from your investment is less than the expenses) then you would be contributing your own money to hold the property.

Most investors then boost their tax return at the end of the financial year through tax-deductible rental property expenses.

This may seem straight forward for single investment property owners, but for those with a portfolio, the ongoing costs could put a strain on their own funds and cash flow.

Let’s look at an example from ASIC’s Money Smart site:

Case study: Juhyan and Jennifer consider an investment property

Juhyan and Jennifer are considering buying an investment property. They spot a unit that ticks all of their boxes: it’s close to a train station and is a 10 minute walk to restaurants and shops.

The property price is $550,000 with buying costs of $23,000. They have a deposit of $150,000 so they will need to borrow $423,000 to complete the purchase. Their monthly income and expenses are expected to be:

Income and Expenses $
Rental income $2,250
Less loan repayment -$2,725
Less allowance for expenses -$225
Less strata fees -$216
Less allowance for repairs and maintenance -$500
Monthly shortfall -$1,416

Juhyan and Jennifer can cover the monthly shortfall with Jennifer’s salary, which they currently save. They also have an emergency fund they can draw on if they were suddenly without tenants for a while.

If Juhyan and Jennifer were to purchase say another three similar negatively geared properties, then they would be in for quite a shortfall!

Did you know you can use the tax system to your advantage?

Instead of waiting for your end of financial year tax return, you may be better off paying less tax throughout the year to subsidise the continuing outgoing expenses of your properties.

By completing the ATO PAYG withholding variation application, you can vary or reduce the amount of pay as you go (PAYG) tax that is withheld from your salary each pay period. This may be preferable if your normal rate of taxation leads to a large refund at the end of the year because it does not take into account your investment deductions. See the ATO website for more details.

How does it work?

Your regular cash flow is increased (less tax paid each pay – so more in your pocket) allowing you to: accelerate your debt reduction; put more in your offset account to reduce the interest accumulating; build up a deposit along with your current property equity for your next purchase and of course to help you with any shortfall for covering your property costs each month.

Beware – conditions apply!

The Australian Tax office clearly states that “We will process your application only if you:
• have lodged all required tax returns and activity statements or notified us in writing if you were not required to lodge tax returns in prior years
• did not receive a debit assessment on your last tax assessment (if you also had an approved withholding variation for that year)
• do not have any outstanding tax debt owing to the Australian Government
• do not have any outstanding debts under any other Acts administered by us.”

The application is valid for one financial year only. So that better be on your to-do list each financial year if you intend to continue using this strategy.

Seek advice

Importantly, don’t dive into investment property ownership without assessing your overall asset strategy, cash flow and budget management – you don’t want to be caught short each month!

Investing in property can be daunting. Let us help you to make it a rewarding step in your life by starting with our ‘10 Steps to successful property investment’.

Changes looming in the Airbnb space

There is no doubt that Australians and visiting tourists have embraced
Airbnb accommodation sharing with gusto.

In fact, in 2017 there were 5,090,000 Airbnb bookings in Australia.

Globally, the company has enabled 260 million check-ins in 191 countries.

Airbnb is not just a city sensation

In 2017 Airbnb reported that Australia was the only major country in the world where regional Airbnb stays surpassed city bookings accounting for 56% of guest arrivals in the prior year.

According to The Australian, during that time popular regional destinations included Cairns, Noosa, Byron Bay, Great Ocean Road, Margaret River, Victor Harbour and Kangaroo Island.

There are many pros and cons of Airbnb hosting. The real motivator for most hosts is making money from available unused space in their home or investment property.

Links to housing and rental prices

There has been much attention on the effect that Airbnb has on long term rental availability, affordability and the supply versus demand scale. A concern held by many is that short-term tourism accommodation is infiltrating residential neighbourhoods, thereby reducing the permanent rental housing supply in high demand cities and increasing rental prices.

A global phenomenon

Withdrawing properties from the long term rental market for money making Airbnb rentals has caused a ripple effect in some cities around the world.

For instance, Barcelona, New York and Amsterdam have responded by placing restrictions on how long properties can be offered for Airbnb rental. In fact, Amsterdam will halve its limit to just 30 nights in 2019.

Local Airbnb reforms

The money making machine of Airbnb hosting is taking a different turn in Australia too… well, for some (for now).

The NSW State Government has handed down laws governing short-term holiday rentals for Greater Sydney.

In short:

• Airbnb properties in Sydney will be restricted to 180 nights a year
• A mandatory code of conduct will be enforced to address disruptive guests, noise levels and the effects on neighbourhoods
• A two-strike policy will be introduced whereby if hosts or guests breach the code twice within a two year period they will be banned for five years
• A dispute resolution process will be in place to resolve complaints
• Owners’ corporations can adopt a bylaw with a 75% majority to prevent property owners who do not live in their unit from short-term letting their property

For areas outside of Greater Sydney, councils will have the power to reduce the days a property can be short-term let down to a maximum of 180 days.

The wave of change may be spreading

Potentially Sydney siders aren’t the only ones set for change. We are seeing other areas of Australia also considering such changes.

There is pressure on Victoria to follow Sydney’s lead. Some developers have taken it into their own hands and banned Airbnb and short-term holiday letting from their new Melbourne apartment developments.

At least three councils in WA are preparing to draft new policies on short-term accommodation.

For property investors..

Property investors using Airbnb for income should be aware of these changes in Sydney. Although some would say a 180 night maximum is still a fair income opportunity, it is a restriction nonetheless and one that will impact income.

Future apartment investors with Airbnb in their sights also beware. The new owners’ corporation bylaw could see your future income diminish.

As for other cities and regional areas throughout Australia, time will tell if the wave of change is coming to you. Lastly, as with all investment decisions, make sure you find a great finance specialist – like us – who understands property structuring and finance, and who keeps an eye on housing trends.

We work with you to understand your long term financial goals and the structure suitable for your individual circumstances. CONTACT US NOW!

The Value of Mortgage Broking

As housing affordability continues to challenge home buyers across all income levels and demographics, Australia’s experienced mortgage brokers help to drive choice, competition and valuable services for the Australians who need them most.

Mortgage brokers encourage competition between all lenders in the market, which has contributed to a fall in lenders’ net interest margins (NIMs) of more than three percentage points over the past 30 years. This benefit is enjoyed by all Australians looking to buy a home or invest in property, not only by mortgage broker customers.

Consumers benefit from the depth and breadth of experience their mortgage broker brings. With an average of 13.8 years of industry experience, mortgage brokers offer advice and support throughout the life of consumers’ home loans, which means lower search costs, more diversity of product choice and service.

At the same time, a key finding of this report is the average income of mortgage brokers who operate as sole traders. On average, these brokers earn a comparatively modest $86,417 after costs and before tax. This shows – like most small businesses in Australia – mortgage brokers run small businesses that rely on satisfied customers and a stable regulatory environment.

Customer satisfaction is the most critical element of a mortgage broker’s success, with more than 70 per cent of mortgage brokers’ business coming from existing customers. This is (at least partly) driven by customer satisfaction, with more than 90 per cent of customers reporting that they are happy with the service they receive from their mortgage broker.

With more than half of all home loans each year originating from the mortgage broking channel, this report highlights the importance of the industry to the broader Australian economy. The mortgage broking industry contributes $2.9 billion to the economy each year and directly employs more than 27,100 full-time equivalent jobs.

Mortgage brokers play an important role in driving competition between lenders, making it cheaper for all Australians to finance their homes. The average mortgage broker has access to 34 lenders and uses an average of 10 lenders on their panel. This choice and competition is demonstrated most clearly by the fact that market share of broker-originated loans for lenders who are not major banks – or their affiliates – has increased from 21.4 per cent to 27.9 per cent in just four years.

This increased competition powered by mortgage brokers is an enormous benefit for small lenders. Without mortgage brokers, these smaller lenders would need to significantly increase their branch footprint to maintain their existing market share. On average, each small lender would need to build 118 new branches to maintain their current share.

The mortgage broking industry also has a positive impact on rural and regional Australians. Three in 10 mortgages arranged by mortgage brokers are for customers based in rural and regional areas. Without brokers, regional Australians would have significantly reduced access to home loan financing options.

The report provides an in-depth understanding of the role mortgage brokers play in Australia. It demonstrates how mortgage brokers strengthen the entire Australian mortgage lending industry by fostering competition, providing service over the life of a loan, strengthening access to smaller lenders and supporting all Australian home buyers.

To find out more, read the full The Value of Mortgage Broking report on the Deloitte Access Economics website, bit.ly/ValueofMortgageBroking.

The Value of Mortgage Broking report was prepared for the Mortgage Broking Industry Group (MBIG) by Deloitte Access Economics.