Commercial Mortgages Are More Than Meet The Eye – Literally!

 

The term ‘commercial mortgages’ is a wrapper for number of different property related finance products. As a business we use it to describe a large amount of the work that we do for clients – and the industry commonly uses this terminology.

The trouble with a single header for multiple products – all of which are quite different in the requirements that they meet – is that in the end the header becomes a bit like an acronym – and you can’t remember what it actually means!

It can be confusing that when we say ‘mortgages’ we are actually also including short-term finance products; in this sense ‘mortgages’ refers to the fact that all of these products are all secured on property.

So when Fiducia Commercial Solutions says ‘commercial mortgages’ what do we actually mean? And who can use them? Oh, and what are they?

Commercial Mortgages:

Commercial mortgages are used to fund the purchase, or refinance of, commercial, semi-commercial or residential properties – and as we explain below the funding reason can be both to occupy the building, and as an investment.

In general terms there are 3 main uses for commercial mortgages:

•       Owner-Occupier: The purchase or refinance of the property where your company is currently trading, or the purchase of a new property to move to and trade from
•       Commercial Investment: The purchase or refinance of commercial or semi-commercial property that will be rented to another company to trade from – essentially a commercial Buy-To-Let investment
•       Residential Buy To Let: An individual or a limited company (‘SPV’ or Special Purpose Vehicle) can purchase residential property to let as an investment, and professional landlords / Buy-To-Let limited companies use these mortgages for the same purposes

In case you were wondering, residential properties are all part of the day job for Commercial Finance brokers! Just wanted to throw that out there – as it does seem a bit of an oxymoron!

Easy assumption is that all we would look at is commercial buildings – shops, offices, pubs, restaurants, factories etc. But the ‘commercial’ applies to the purpose, not the property.

Commercial mortgages are, just like residential consumer mortgages, available with fixed or variable interest rates over a range of years, and the amount that you can borrow is set as a ‘Loan To Value’ (LTV) percentage of the property value.

Existing property holdings with equity value in them may be considered towards the deposit by some lenders as security.

Affordability, Affordability, Affordability!

The amount that you will be expected to have a deposit can vary according to different factors, including:

•       If you are a commercial owner-occupier: the sector that you are in / your company’s recent financial performance / they type of property you are financing
•       If you are a commercial investor: the type of property you are financing / the sector that your tenants are in / the amount of revenue generated from the lease/s
•       If you are a residential investor: commonly come with a higher LTV than commercial property; affordability driven by valuer’s confirmation of the achievable market rent, which is stress tested against mortgage payments

We want to cut through the acronyms and smoke and mirrors to show that far from being some sort of ‘dark arts’, lenders use the same process to evaluate your business as we all might do our own personal finances.

With investment mortgages the maths is relatively straightforward; you will have a commercial lease or residential tenancy agreement in place with your tenant and the lender will ‘stress’ your mortgage with simulations of interest rate rises to ensure that even if rates were to rise from their current levels then the rental income still makes the mortgage payments affordable.

Commercial Mortgages for trading businesses have far more moving parts, as affordability is based on the future trading performance of the business.

In the absence of a crystal ball the lender has to use past performance as a guide to whether your business can service the mortgage moving forward.

Again we can draw a similarity here with a personal mortgage application – your prospective lender would want to know all about your income, together with the other debt and outgoings that you have to service regularly. From this they will derive how much ‘headroom’ you have in your finances to be able to afford the mortgage.

Bridging Finance:

This effectively does what the name suggests – bridges the gap from one point to another in a financial sense, and are a short-term property finance product, between 3-24 months in term, but the ‘common’ term is 12 months.

At the end of the loan the ‘exit’ from the loan for your company is the repayment of the loan from the disposal of the property, or ‘re-financing the bridge’ with a long-term finance product.

Bridging loans can provide a quick route to property purchase, and are commonly used to purchase property at auction and for circumstances when the normal conveyancing cycle would take too long to complete the purchase in the required time frame.

Bridging is a means to refurbish commercial or residential property, or funds to develop property – from light / cosmetic refurbishment of existing structures to ground up development of land.

‘Just’ for property transactions? Well, no.

Bridging is of course based on property as the security for the loan, but the business reason could be to release equity from a property already held by a business or director. Therefore it could be said that bridging finance is a cash flow tool for raising working capital too.

Given the specialist and short-term nature of bridging loans, interest rates can be higher than traditional commercial mortgages.

Development Finance:

On the surface a complex area of finance – but you can start to lift the lid on its application for you and your business by looking at the amount of structural work that is required on your project.

Finance terms that are available to you vary according to:

•       the initial value of the property / land (Purchase Price)
•       the costs and fees associated with the development work (Cost Of Works)
•       the projected value of the completed development (Gross Development Value)
•       your previous experience of development

Commonly used terms for variants of development:

•       Light Refurbishment: Cosmetic refurbishment with no structural changes. Includes: Kitchens, Bathrooms, Windows, Doors, Decoration and modernisation
•       Heavy Refurbishment: Contains cosmetic work, but usually renovation work including structural changes (internal walls) or changes to the footprint of the property
•       Ground Up Development: Commonly starts from vacant land, can include demolition and rebuild projects

Lenders are likely to look for projects where planning permission is already granted, even if you might vary that once you have acquired the site.

 

So it is worth your knowing that ‘commercial mortgages’ isn’t a header for a single product – and there is no ‘one size fits all’ solution.

But that is where a commercial finance broker can add so much value to you – we can listen to your full requirements and match you with the most suitable lender and product from our large ‘whole of market’ panel of lenders.

We do the legwork so that you don’t have to – how do you want to put the roof over your business or investment?

Mark Grant, February 2022.

mark@fiduciagroup.co.uk

Funding Your Business - From ‘Cradle to Grave’..

 

I’m not on this occasion talking about funding premises for an early years’ childcare business, or a 30 bed elderly care home – but if you are looking for that then my e-mail is at the foot of this Blog!

A lot of companies start their trading process with either an order from a client that they have to fulfil or having to ‘stock up’ on the goods that they sell, because customers will expect a quick delivery after they make a purchase.

Depending on the nature of their business, companies will either buy raw materials that they manufacture or assemble to create finished and saleable goods, or they will purchase ‘finished goods’ from a manufacturer or supplier – packaged and ready for delivery to their customers.

At this initial stage of their process how they fund the purchase of goods or materials has to be thought through, in combination with how they will get paid when they sell to their customers; therein lies the analogy of ‘cradle to grave’ in terms of a company’s trading process.

Trade Finance can be used to fit a wide range of business types:

o   Purchase raw materials or finished goods

o   Trade can be with UK based companies as well as overseas

o   Commonly Trade Finance lenders are also experts in FX

o   Goods can be pre-sold, or to provide a stock for sale

Your business can improve prices and terms from having the backing of a Trade Finance facility and being able to pay earlier, and Trade Finance facilities can be flexible to accommodate deposits if required on order and other costs including import VAT and shipping/freight if these are applicable to you.

In the current environment, where companies are dealing with prices rising in their supply chain, delays in receiving their orders and inflated freight and transport costs, working capital can become strained without much notice.

Funding the acquisition of goods or materials that are either pre-sold or to provide you with stock leaves crucial cash in the business to cover overheads and unexpected demands on the company.

The following are just general illustrations of how Trade Finance can work for a business – and also how you could be covered from ‘cradle to grave’ with Invoice Finance after you have sold your goods:

Many Trade Finance lenders offer Invoice Finance facilities to their clients for good reason – because they can then offer your business a seamless process without causing a large cash call on the company at any stage of your trading lifecycle.

It of course depends on the nature of your business as to whether Invoice Finance is suitable for how you deal with your customers – but if it is suitable then Example 2 demonstrated that you could complete the entire transaction without any significant draw on your cash flow.

A common objection to both types of finance is the cost of the facility and funding these transactions; beyond the fact that lenders that we work with offer extremely competitive rates on their facilities, I would suggest that these are a great example of the ends justifying the costs of the means.

The cost of funding will slightly reduce your margin on the transaction – but with very little effect on working capital, and consequently you are still able to meet other demands that you face – as well as to fulfil any opportunities that are presented to you.

We understand that every step of ’getting stock’ to ‘getting paid for stock’ can be a drain on your cash flow that you might not be able to afford without funding support – and possibly an opportunity cost if it leaves you unable to take up new opportunities.

 

If you have a supply chain, and supply customers, why not talk to us about where the ‘pinch point’ is for cash flow in your business on your road from cradle to grave?

Mark Grant, February 2022.

mark@fiduciagroup.co.uk

Commercial Mortgage? Forget Location, it’s about Affordability, Affordability, Affordability!

 

We are seeing a lot of activity in Commercial Mortgages – both owner-occupier and investment – and just like with a personal mortgage it is logical to think that one of the primary things that a lender will look at is whether you can afford to repay the mortgage – both now and in the future.

We want to cut through the acronyms and smoke and mirrors to show that far from being some sort of ‘dark arts’ it is the same process they use to evaluate your business as we all might do our own personal finances.

With a Commercial Investment Mortgage the maths is relatively straightforward; you will have a commercial lease in place with your tenant and the lender will ‘stress’ your mortgage with simulations of interest rate rises to ensure that even if rates were to rise from their current levels then the commercial lease still makes the mortgage payments affordable.

Commercial Mortgages for trading businesses have far more moving parts as affordability is based on the future trading performance of the business.

In the absence of a crystal ball the lender has to use past performance as a guide to whether your business can service the mortgage moving forward.

Again we can draw a similarity here with a personal mortgage application – your prospective lender would want to know all about your income, together with the other debt and outgoings that you have to service regularly. From this they will derive how much ‘headroom’ you have in your finances to be able to afford the mortgage.

Debt Coverage Ratio (DCR)

I did say that we wanted to cut through the acronyms – so it’s high time that we started to use them!

When a lender takes away your outgoings for debt from your income, they will be left with the current ‘headroom’ in your finances from which your company’s mortgage can be paid moving forward. But there are still variables in this number such as your business turnover decreasing, or your other costs or debt increasing.

So the lender won’t want to see that your headroom is equal to (or less than) your future mortgage payments, but a multiple of them. This is called your Debt Coverage Ratio (DCR) – and commonly lenders are looking for a DCR of 1.5x to 2x.

Calculate your Debt Coverage Ratio (DCR):

Annual Net Income Divided By Annual Debt Payments = Debt Coverage Ratio

For example:

£82,500 Net Income Divided By Annual Debt Payments £45,000 = DCR of 1.83

Using the ‘right’ Net Income

Of course it couldn’t be so easy that the lender could just cherry pick a line from your company’s last set of filed accounts and use that; oh no, they have to go and make us calculate another number that they use in their affordability calculations too!

Your existing company accounts include existing lease or mortgage payments but the lender is evaluating future affordability of a new mortgage – so the ‘net income’ that they use will have certain items added back onto it.

This generates what lenders generally call ‘adjusted net profit’ or ‘adjusted EBITDA’.

We are not qualified accountants, so these calculations really do stay on the ‘back of an envelope’ for our purposes. In simple terms take the profit before tax and add back to that items such as:

•       Lease / Rent
•       Depreciation
•       Amortisation
•       Directors’ Dividends

Case Study – ABC Ltd

We can take the case of ABC Ltd, and then put into practice the above construction of the Net Income, and then use that along with the debt in the company to derive their Debt Coverage Ratio (DCR).

•       ABC Ltd. currently pays £40,000 pa commercial lease
•       Annually ABC Ltd. make £15,000 in Asset Finance payments
•       They are applying for a 70% LTV mortgage on a £465,000 purchase price, meaning a £325,000 loan, estimated by the lender to be £32,000pa initially in annual payments

Accounting for the pandemic impact

Like a lot of businesses in the country, ABC Ltd was Covid impacted, and so if we moved forward to the current period, and included the financial year 2020/21, then that doesn’t present on its own a Debt Coverage Ratio (DCR) that the lender would see as indicating affordability.

The obvious addition to this table is the fact that the lender will strip out Covid related grants and income that are one off in nature, and this reduces the DCR to levels where the lender would not arrive at a positive decision for affordability.

But we are now three quarters into the next financial year for ABC Ltd, and thankfully into recovery mode for many business post-pandemic restrictions, and so lenders are willing to include the accounts for this new current financial year in their assessment.

The 9 months from April to December 2021 actually showed a 25%-30% increase on turnover compared to the 2019 and 2018 figures for the same period due to a ‘post restrictions’ surge in demand, and so there is something here for the lender to work with and progress for ABC Ltd.

 

We are seeing a lot of demand for, and activity in, Commercial Mortgages – and armed with the accounts and facts we can work with lenders to find suitable and affordable solutions for the roof over your business or for your commercial investment property.

Mark Grant, February 2022.

mark@fiduciagroup.co.uk

Your Property Requirements, and Our First Assessment

 

As soon as a client or introducer starts to relay to us the details of property requirements, the cogs start to whirl as we assess where the property sits with lenders’ criteria – and we aim to quickly arrive at whether your expectations of the requirements can be matched with what they are eligible for.

We don’t make any ‘decisions’ about direction for you; we are here to ensure that you are aware of what options you are eligible for, and to help you achieve the best outcome for your requirements.

Investment Property – The ‘Slam Dunk’

This point scoring analogy on either Residential or Commercial investment properties not aimed so much at the requirements being ‘easy’ to complete for you - it’s property, there are always wrinkles to iron out.

The ‘Slam Dunk’ refers to the fact that you are presenting a property that is either already occupied by tenants, or is ‘tenant ready’ with the ability to have tenants sign leases or ASTs on completion.

Tenant ready? As part of the lender’s valuation the surveyor will report on the condition of the property and confirm that it is habitable, and ready to generate income to service the mortgage from day one.

Our first assessment is listening out for the properties where the client approaches us for a long-term mortgage, but where the tenants won’t be able to rent from day one, and so rental income won’t be there to service the mortgage.

Investment Property – ‘A Lick of Paint and New Carpets’

We want to understand the degree of work that will be needed to maximize rental income and yield for the client – and in some cases a property may present as ‘tired’ for prospective tenant, and require ‘freshening up’ before being let to ensure it achieves its income potential.

Where works are really concentrated on condition, presentation and decoration – covering for example bathroom suite, kitchen, decoration and flooring – we have options where a long-term mortgage lender can consider a short up front period to carry these works out.

We work with a Buy-To-Let mortgage lender for example that can allow a 3 month up front window post-completion for such light works to be carried out – with a limit of 10% of the purchase price to be spent on them. You would have to provide the schedule of works to the surveyor when the initial valuation is done for them to report on to the lender.

But where the works are so light is could be a viable option to avoid the need for a separate initial short term funding product to be put in place.

Owner-Occupier Commercial Property – The ‘Short, Sharp Refurb’

As above with investment properties, trading businesses can come to us with a current property that they lease or own, and with a requirement to purchase new premises to operate from.

Many sectors can require premises to be fitted out or refurbished to suit their operating requirements – from a hairdressing salon to a logistics or warehouse operator.

We have worked with clients and lenders to agree a short up front ‘cross over’ period where their new operating premises is refurbished and fitted out while they still trade from their current premises.

The outcome for the client is continuity in trading, and so long as the requirements are signed off as viable in a short timeframe at the point of valuation, lenders can be amenable to this.

The Refurbishment Property – “It Just Needs XYZ and We Can Be In There”

An extremely common catch for us in first assessment – far more common than you might think – would be that clients approach us for a long term mortgage on a property that is not habitable for their purposes on day one.

This includes owner-occupier Commercial properties, or Residential and Commercial investment properties.

Clients may not be aware that lenders won’t lend a long-term mortgage where income is not available on day one to service that mortgage from a lease or AST that they can see and understand during underwriting – and they ensure that it is all confirmed to them at the point of valuation.

The solution is for the client to put in place short-term finance initially – Bridging Finance – and then refinance with the long-term mortgage as the exit to that initial loan.

Bridging loans can be used for a varying degree of refurbishment or conversion work on properties – and different lenders will support varying funding, from purchase only to including the full cost of the works:

• Light Refurbishment - Cosmetic refurbishment with no structural changes
• Heavy Refurbishment - Contains cosmetic work, but usually renovation work including structural changes or changes to the property footprint
• Ground Up Development - Commonly starts from vacant land, can include demolition and rebuild

 

Our assessment of your requirements starts with what products or lenders you are eligible for, and we then look to source options that provide the best outcome for you and your property.

Why don’t you talk to us about what more there is than meets the eye with your residential or commercial property – and how we can help you to fund it?

Mark Grant, January 2022.

mark@fiduciagroup.co.uk

Could Your Business Recover Quicker or Grow More With Same Day Payment Terms?

 

As you plan for 2022 and beyond, what will allow your business to recover quicker or grow more moving forward?

Are you resolving to ease the cash flow pressure on your business in 2022? How much pressure would be lifted on your working capital if you could close the gap between paying your overheads, wages, contractors etc and actually getting paid yourself?

How much more time would you have to get on with running your business, instead of juggling your business’s finances?

If you provide payment terms to your customers, then you could be operating in some senses by watching the calendar for when your invoices are settled.

How many more opportunities could you take on NOW if your business operated on SAME DAY payment terms with your clients?

Cash flow or working capital, however you want to term it, is what allows your business to operate, trade and essentially exist. That sounds like an over simplistic statement, but the reason why companies use cash flow forecasts is to stay one step ahead in ensuring the flow of cash in their business.

Cash flow provides for a wide range of purposes such as wages, fixed overhead costs, paying suppliers and increasing or diversifying your activities as business conditions dictate – or opportunities present themselves. When cash flow dries up, your trading activities can cease up, and this can prove terminal.

Even if your company has not been directly impacted by the pandemic, and suffered lower sales, productivity or even a forced closure, it is highly likely that through your supply chain, staff or customers you will have felt the effects in your cash flow; virtually no business has remained directly or indirectly unaffected.

And even in the extended periods since last April when we may have felt that ‘normality’ was on the horizon, other factors such as the global supply chain crisis, labour shortages and price inflation have impacted the majority of companies in the economy.

In the current economic environment it is very easy for you to become the ‘stretched middle’ of the supply chain:

·        your suppliers or manufacturers may have short or up-front payment terms in advance of you receiving the goods or materials

·        your clients may not pay you for delivered end product or services for 2 to 3 months after delivery

If that is repeated on every transaction that you do, can you afford to keep funding that cycle plus other overheads for the months in the middle? Or will that leave you stretched? Or worse?

Invoice Finance may not be the most suitable product for every part of the economic cycle – but think of it another way: what other financial facility will pay you for most of the work that you have completed just a few days after you have completed it, when your customers won’t be settling anything with you for another 60 to 90 days?

We see this as the clearest demonstration of the ends justifying the cost of the means – many businesses won’t be able to manage without these facilities in the coming economic climate – and we consider Invoice Finance will likely be one of the best cash flow conservation tools available to companies.

·        It’s flexible and can adapt to most sectors and business models; it fits with business conditions and turnover, unlike the rigid structure of a business loan.

·        Your company will need continued support to ensure that waiting for invoices to be settled doesn’t limit your activities – or your ambition.

If your company has an Invoice Finance facility in place you might be wondering how we could help you. You may be able to benefit from an improved funding rate or lower costs? As you would do in your personal finances, it pays to look for alternatives that may be more suitable and/or offer you improved terms.

Several types of Invoice Finance products are available, and we can help you identify the most suitable solution for your business:

·        Invoice Discounting - The simplest form of invoice finance. You keep charge of credit control, and get paid up to 90% of your invoice’s value on the day that you issue it to your customer, with the balance when they settle.

·        Invoice Factoring – As per Invoice Discounting, plus the lender manages your credit control - this can free up your time to get on with running the business.

·        Selective - You select either the clients or the individual invoices to put into invoice finance, so you only use the facility when your cash flow requires it.

·        Specialist Sector? - Construction Finance, Recruitment Finance and Professional Services Finance are just a few examples of specialist products that could be tailor made for your sector.

Please Ask Yourself This Question:

As you approach and plan for the next 12-24 months, is it likely that you will ALWAYS have the cash flow necessary to meet wage bills, pay suppliers, or grow your activities, without the certainty of knowing that when you issue an invoice you will get funded almost immediately?

 

Gain the financial confidence to drive your business forward from here as if your client billing was all issued with same day payment terms; Invoice Finance allows you to fund both outgoings and opportunities with the business that you are already doing, and without depleting your cash flow.

Why not talk to me about how Invoice Finance can benefit your business?

Mark Grant, January 2022.

mark@fiduciagroup.co.uk

Conserving Cash Flow in 2022 Is Self Preservation For Your Business

 

As a business owner, director or manager 22 months into a global pandemic, you will by now be very well aware that thinking about cash flow conservation isn’t just in the court of your accountant, FD or accounts team; it is about self preservation and keeping the doors of your business open.

The Covid-19 pandemic just presents you with one certainty – that there are no certainties!

We do not know the impact that changing seasons and new variants will have on our business until they ‘happen’ to us – or what direct impact they will have on our customers or suppliers – which in turn of course impacts you as well.

Cash flow conservation is not a new concept – plenty of old tricks like chasing your receivables, negotiating your payables, cost cutting to trim the excess from your business costs etc.

But this pandemic and its uncertainties have put an additional urgency on ensuring you preserve a level of cash within the business where possible – for whatever is around the next corner, and one certainty is that we are all heading to another corner!

For example, you probably couldn’t just roll out last year’s budget / cash flow plans again for 2022 – did they factor in staff shortages in many sectors, the global supply chain crisis and HGV/delivery driver shortages in the UK to name just a few factors now on your radar?

So what could you consider to help you to conserve a level of cash within the business while you still have overheads, delays to banking receivables and expenses related to the business as you adjust or increase your activities to meet the challenges of the times?

For some people this may be just a case of finding out what is available to them in terms of finance products and tools – for others who might have always previously managed their business without the need of finance it might be a bitter pill to swallow, or a ‘last resort’ even.

Our very recent experience shows us that cash flow is the life blood of all of the businesses that we are dealing with, and maintaining a level to get you through this pandemic, or having a sufficient level to enable you to expand your activities and grow, is worth sacrificing a small amount of your margin to cover the cost of financing your business.

As you look at a cash flow forecast for your business this new year, factor in the tools that might be able to help you to conserve your cash flow and spread the cost of all of your outgoings over the months and years ahead; the same tools can also regulate your income to meet outgoings and opportunities as you have them.

We wanted to provide some examples of commercial finance products that can help your business to conserve cash flow and navigate out of the current situation.

Several of these are available until June 30th 2022 under the Government’s Recovery Loan Scheme (RLS) for eligible companies, alongside RLS business term loans, so please talk to us today about the benefits this could provide to your business.

 

Commercial Property Refinance

Your business may have commercial property that you own that has an outstanding mortgage on, or is unencumbered with no debt outstanding on it. In short you may have ‘equity’ in your property.

Commercial property for trading businesses will commonly be ‘owner-occupier’, the premises that they operate from; but some businesses also own and lease out commercial property that other companies operate from – ‘commercial investment’ property.

Refinancing commercial property could be used to conserve cash flow in more than one sense:

• Refinancing your existing mortgage onto a new deal could improve the rate of interest that you pay (reducing outgoings) or it could offer you fixed rate protection for an agreed period (limiting your costs for that agreed period)
• Refinancing commercial property to raise additional funds for your business is doing so over an extended period (commonly 15 – 25 year terms) and often at a significantly improved interest rate to those available on short term business loans, due to the security that the lender has in your property

We work with lenders who can also consider residential and BTL property as security for loans for business purposes. This is not suitable or viable for everyone (we and our lender partners operate a policy of responsible lending when it comes to residential properties), but if it was it could significantly improve your cash flow profile over a short term unsecured loan.

Receivables can Regulate your Cash Flow – Invoice Finance

Invoice Finance may not be the most suitable product for you in every part of the economic cycle – but think of it another way in trading out of the Covid-19 pandemic: what other financial facility will pay you for most of the work that you have completed just a few days after you have completed it, when your customers won’t be settling anything with you for another 60 to 90 days?

Without that immediate cash flow you will have to cover the cost of wages, contractors, overheads, suppliers – and then if you have the opportunity to take on more work or another project, do you have the cash flow to do that now or will it have to wait until your customers settles in the future?

We see this as the clearest demonstration of the ends justifying the cost of the means – many businesses won’t be able to manage without these facilities in the current economic climate – and we consider Invoice Finance will likely be one of the best cash flow conservation tools available to companies.

Trade Finance

Depending on the nature of their business, companies will either buy raw materials that they manufacture or assemble to create finished and saleable goods, or they will purchase ‘finished goods’ from a manufacturer or supplier – packaged and ready for delivery to their customers.

Trade Finance can be with UK based companies as well as overseas – and if it is from overseas, then Trade Finance lenders are also commonly experts in FX as well.

Your business can improve prices and terms from having the backing of a trade facility and being able to pay earlier, and Trade Finance facilities can be flexible to accommodate deposits if required on order and other costs including import VAT and shipping if these are applicable to you.

In the current environment companies need to conserve cash within the business as working capital can become strained without much notice. Funding the acquisition of goods or materials that are either pre-sold or to provide you with stock leaves crucial cash in the business to cover overheads and unexpected demands on the company.

Short Term VAT Loans

One quarter’s VAT bill was able to be deferred to March 2021 under an HMRC scheme, for bills that fell due between 20 March and 30 June 2020 at the start of the pandemic. Most firms then spread the cost of that repayment over the following 2021/22 tax year.

HM Treasury recognised that you need to conserve cash flow in your business, and not have to settle that whole quarter in one payment – but how does that help you with every other subsequent quarterly VAT bill that you face?

We have a lenders offering 12 week loans to help to settle some or all of your VAT bill – you can repay weekly or monthly as suits you best – but the big win for you here is conserving cash by spreading the payments and keeping some liquidity for whatever might come next.

Once set up for one quarter’s bill, the facility can be easily rolled when the next bill arrives – meaning that you don’t have to go through the same level of funding application each time.

Lease or HP Over Buying For Cash?

None of us are going to trade out of this environment by standing still – but when you are looking at new or replacement vehicles for your business, you should conserve cash and use smart finance.

We work with expert partners who can not only source cars and commercial vehicles, but who can source the most suitable Lease or Hire Purchase (HP) deal for your company.

Whether you are looking for New or Used vehicles, a single vehicle or entire fleet – using the right finance for your company in this environment is the smart choice. Conserving cash within your business right now makes sense – none of us know what is around the next corner or when we will need a cash buffer.

Tax efficient, AND better for the environment?? There are a range of CO2 emissions bands, and your business can benefit from an increased offset against profit the lower the CO2 output of your business vehicles. We recommend that you take the advice of your accountant to understand the full benefits available to your company.

I’m sure that you can understand therefore that we have seen a shift away from diesel cars being commonly used for business – we have seen great interest in hybrid and electric models in the last year, and yes, Tesla is very much on the scene as a business car!

Asset Refinance

Your business may have hard / soft assets, or stock, that is unencumbered or with significant equity, that you might consider putting to work to generate much needed cash flow for your business at this time.

We work with Asset Based Lenders who our clients use to access cash that they already have but that is locked up in the existing assets of the business.

 

If you are planning your budget and cash flow, why not talk to us about how commercial finance products – some that you may not even have considered – could help you to plan your way through 2022 and beyond.

Mark Grant, January 2022.

mark@fiduciagroup.co.uk

Fixing The Rate Of Your Commercial Mortgage – The Ship Hasn’t Sailed

 

A few days on from an interest rate hike I’d ask you whether the benefits of looking to fix the rate of your commercial mortgage still outweigh the down sides – and suggest that they do.

From twelve months ago, when the Bank of England was sounding out banks and financial services companies on how prepared they and their systems were for the chance of a negative base rate, we evolved to an economy as we transitioned out of the pandemic restrictions of heated demand and shortness of supply – also called inflationary pressure.

A near perfect storm of contributing factors are driving a seemingly endless upward pressure on costs:

•       Demand outstripping supply of almost every raw material
•       Delays in materials and manufactured goods in the supply chain globally
•       Record freight costs, and restricted availability of freight, to get the same goods and materials to the UK
•       Chronic shortage of HGV drivers within the UK to distribute at all stages of the supply chain
•       Combination of factors has driven energy costs up – and these are still rising
•       Several sectors of the economy suffering chronic staff shortages and an inability to recruit

As I write this we are heading back into another possible economic storm caused by the new rapidly spreading Covid variant, Omicrom. Already hospitality, retail, events and entertainment sectors have had the rug pulled from underneath them when entering their busiest period of the year – the path back out of the pandemic period is again not a straight one.

Cost pressures are feeding through to virtually every business in the economy – and these are not costs that UK companies have much if any control over at all. And that brings me back to my question – is it still a good time to fix the rate of your commercial mortgage?

If you feel that inflationary pressures are going to mean that the next move in rates will continue to be upwards, then fixing your mortgage at a currently available fixed rate would make sense.

And when we talk about price rises – energy prices up 4 to 6 times, and many materials up 20%, 30%, 50% or doubling – then the 5% CPI number for November would seem to be a very modest number that has to move higher in the coming months?

But psychologically, fixing your commercial mortgage rate is exerting control over a major cost to your business – not to mention the physical roof over your business!

If you are budgeting and forecasting for your business for the coming year in 2022, then unfortunately with some costs you might be as accurate with a coin toss as a calculator; but with a major cost like the mortgage fixed for a 2 year or 5 year term (or longer) you would be adding accuracy to your budgeting, and hedging against future interest rate rises that would immediately add to the call on cash flow to your business if you are on a variable rate mortgage.

Which takes us full circle to the question of whether the upside to fixing the interest rate on your commercial mortgage outweighs any downside.

Many of our clients are applying personal finance logic to their commercial mortgage decisions – and deciding that fixing the rate now removes the risk of increased costs if interest rates continue to rise, at a time when they already face so many increases in costs that they have no control over.

 

We help clients source the best commercial mortgage solution for their business from our whole of market panel of lenders – why not let us help you fix the cost of the roof over your company?

Mark Grant, December 2021.

mark@fiduciagroup.co.uk

Run A Business? Resolve To Give Yourself A Break This New Year.

 

Like everyone, I am hoping that the major supermarket chain’s advert “This Christmas, nothing’s stopping us” is spot on, and the Omicrom variant does not require further restrictions to come in to force that would limit our ability to spend this year with family and loved ones.

The decorations have been up for a couple of weeks at our house, and my thoughts have turned to New Year’s. 

And not where the evening is going to be spent and who with, but what I will be giving up on January 1st, and how many hours or days until I break this year’s resolutions.

And over the month of December, I don’t go through this ritual alone; no, I will join the office or WhatsApp banter about what I am giving up and how this will be the year that I stick it out – and as usual I will place the side bets that I will stick at it longer and more effectively than the colleague/friend concerned.

Ironic really, as most of the gambling is done as I am pledging to cut down on…erm, a flutter on the football; or the number of kilos I will shed is inflated and thrown out there as I wipe the crumbs from my mouth of the latest mince pie I am sampling. (Why believe the Which? survey when you can buy a box of mince pies from every supermarket and eat them yourself?)

I question, and have come to the conclusion, that New Year’s resolutions in this format are actually bad for us: I do myself so much mental self-harm during the aftermath of the latest ‘epic fail’ at sticking to them that I would have been better doing everything in moderation in the first place. I’m fairly sure that the excess in the run up and the resolution fail are fairly equally balanced in terms of damage to me!

What I need to do is give myself a break. One drink doesn’t mean I need to prop up the bar the whole of January. A couple of left-over chocolates don’t mean that I should carry on eating sweets for the whole month – because I will still be having a very healthy month by recent standards if I just get back on with my resolution.

Business owners and management must approach the end of 2021 with the same trepidation. No matter how well laid the plans have been this year, the utterly unique and unpredictable nature of the economic environment has made it virtually impossible for companies to have the right plans and preparations in place for whatever happens next.

Case in point: Demand. Who foresaw the simultaneous scale of global demand leading to chronic supply chain issues in the ‘just in time’ model – combined in the UK with the fallout from the Brexit trade deal having completed; suddenly whole sectors of the UK economy faced staff shortages and there was a lack of haulage drivers to deliver the goods and materials that we could source.

You only have to look at the last two weeks to confirm that the one certainty of 2021 is that you cannot be certain of what comes next, and of exactly how that will affect and impact you: 11 days ago additional mask wearing in shops and on transport was going to be followed by an update in 3 weeks – 4 days ago we were urged to work from home again…

But I do believe that if we break down our company resolutions into manageable pieces then we can identify a path through pretty much whatever gets thrown at us.

By this I mean don’t just have one strategy, one set of targets, one ‘Plan A’ if you like, and if something derails that two weeks into January just throw your arms up in acceptance that you have been knocked off your chosen course – and accept whatever happens to you as a result.

We have seen this year that the companies who have fared better are those that have been pro-active and have tried to get ahead of the game to find out what their options are, what is available to them and how to make the most of the situation that has been forced on them.

We are looking at 2022 as the year of the company that has the resolve to trade their way out of the appalling economic conditions that the pandemic has inflicted on us, but that has a flexible approach to how they achieve that. One slip, one bump in the road, one resolution in their strategy that is not kept through their own fault or events beyond their control, will not derail their end game and targets.

Business owners and directors have to give themselves a break when things change out of their control next year, because what might have been a ‘given’ in scenario analysis historically cannot be relied on to repeat itself in 2022.

There are too many unknowns, too many consequences of those unknowns – the only positive response will be to have the flexibility to adapt to the new reality and move forward again from there.

Flexible resolve will put you in a position to always quickly adapt to the ‘Plan B’ that at New Year’s you didn’t even realise that you needed yet – but business will need this flexibility and positivity to keep the direction of travel forwards. (And like the Government, it may be a good idea to have a Plan C and D up your sleeve too.)

So, I will practice what I preach, and one custard cream won’t mean I have to beat myself up like I haven’t eaten the whole biscuit tin. Just like your business shouldn’t halt due to a cancelled order, staff absence or supply chain delays – have the flexibility to see past that issue, adapt to whatever the new reality is and stick to those resolutions as closely as you can.

And give yourself a break.

 

Mark Grant, December 2021.

mark@fiduciagroup.co.uk