Is It A Good Time To Fix The Rate Of Your Commercial Mortgage?

 

Far from any claim to have the crystal ball on when and how much interest rates will change, the question is pointing to whether the benefits of looking to fix the rate of your commercial mortgage now likely outweigh the down sides.

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 have evolved to an economy as we transition 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, in the case of wholesale gas by 6 times – and these are still rising
•       Several sectors of the economy suffering chronic staff shortages and an inability to recruit – I did linger over the advert for a cabbage picker on Friday afternoon, annual salary equivalent to £62,000 basic

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 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 be up and not down, 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 3.2% CPI number for August 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, 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 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 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, September 2021.

info@fiduciacommercialsolutions.co.uk  / 01636 614 014

Asset Based Lending – You May Already Own Your Funding Solutions

 

You start with a blank page to decide the route down which your business can move to secure the funding that you need – but commonly people do not consider that the page isn’t blank at their starting point, and that is because of the assets that they already own within their business.

What is Asset Based Lending?

You could define the purpose of Asset Based Lending as leveraging the assets that you already own to enable, grow and advance your business.

Asset Based Lending (ABL) is exactly what is says on the tin – lending that is based on the assets of a business. This includes:

•       Property and Land
•       Stock
•       Assets (such as machinery or vehicles)
•       Sales Ledger (Debtors Book)

By using ABL to raise all or some of your required capital, the result is a bespoke finance solution based on your business and not a ‘one size fits all’ off the shelf solution.

ABL leverages existing assets that may not already be getting used to generate capital – so they are potentially more efficient and cost effective than seeking unrelated and unsecured finance separately.

Asset Based Lending can play a critical role in both company acquisitions (MBIs) where the assets of your existing business and the business that you are buying can be leveraged, as well as MBOs where the existing management team can leverage the assets that they already work with to part or fully fund their deal.

Property and Land

A company can own a variety of different property types or land, with or without planning permission. Where the business has headroom in the equity of this property or land, they can release capital with a secured loan.

For example:

A manufacturing business has a property worth £1m on its balance sheet, with an outstanding commercial owner-occupier mortgage of £300k.

Subject to credit assessment of the current trading performance of the business, they may be able to look to raise up to an additional 40% of the property value, or £400k, through refinancing the property.

This type of secured finance will be at a lower rate than unsecured finance that would be available, and a good example of Asset Based Lending being more cost effective than a new or separate unsecured loan facility.

Stock

A type of funding that will commonly be looked at alongside another facility, such as Invoice Finance, but where viable and relevant it can again help to release some capital in stock that is currently just ‘sitting there’ where the business commonly holds it.

Typically Stock Funding will release 15% - 20% of the value of stock levels, where the business demonstrates that it holds a fairly consistent level taking both sales and supply into account.

Assets (such as machinery or vehicles)

In simple terms, your company may own assets that are either unencumbered or partially financed. Lenders will commonly lend up to 70% of their current value less any outstanding finance.

On its own unlikely to be funding the complete finance requirement that you have, but like Stock Funding you could get a valuable contribution from Asset Refinance.

Sales Ledger (Debtors Book)

You can help to release working capital towards your funding requirements by leveraging the outstanding customer invoices of your business (your debtors’ book).

The debtors’ book is an asset of a business, and when unencumbered it has the potential to release vital capital towards the funding that you are looking to achieve.

This funding is then repaid through the natural flow of turnover through the business, and not via fixed loan payments every month, taken no matter what turnover the business is doing. This could add a lot of value in the context of an ABL package of different types of funding combined.

Packaging an Asset Based Lending solution

The beauty of using ABL funding is that is like a corporate tool box – or a funding “pick ‘n mix” almost. You literally just pick up and use the elements that are suitable and add value to your overall funding requirements.

To that end the funding does not have to be sourced all from one lender – and the ability to piece it together from more than one funding source can help you to achieve improved terms and rates – and ultimately the most suitable outcome to fund your acquisition.

We have experience of using both single and multiple lenders to provide funding options for clients, and combining Asset Based Lending where necessary with further funding facilities such as Term Loans and Trade Finance to complete the required commercial finance package.

 

We work with clients to understand the funding requirements and their underlying business, doing all the legwork to source suitable solutions and to help them achieve the best outcome for their requirements.

How do you want to finance your business?

Mark Grant, September 2021.

info@fiduciacommercialsolutions.co.uk  / 01636 614 014

Fiducia's 'Commercial View' - The Podcast - September 2021

 

Schools are back this month - and so is Fiducia's 'Commercial View' podcast, looking at news and trends in UK property and the commercial finance market:

 https://open.spotify.com/show/1PzCdJnpsWPtd3TIjVu2Yh

• Delighted to hear the Commercial View this month of Jonathan Sealey, CEO of Hope Capital who discusses the changing face of the UK property landscape, and how their product ranges have adapted to meet client' demand. 
• Property repurposing, conversion and refurbishment are taking a far bigger slice of the short term lending market post-pandemic - we look at why. 
• Without the benefit of a crystal ball to assess affordability of commercial mortgages, lenders are sharpening their pencils and diving deep into past performance to shine light on the road ahead - we look at how. 
• Trading Businesses will share a lot of common issues as they trade out of the Brexit and Covid period - we identify the issues and look at how we could help mitigate them in some ways. 

We would welcome the opportunity to help source suitable solutions for your commercial finance requirements - please drop us a mail to info@fiduciacommercialsolutions.co.uk or call in on 01636 614014. 

Have a good month.