Have you really negotiated the best commercial loan package? Do you really know what this means to you?

Did you know…

1. The variation in interest rates, fees and charges for commercial loans is dramatic. Far more than residential loans.   The variation between an expensive and inexpensive lender may be as much as 3-4%.

2. Because the average commercial loan is greater than a residential loan, any difference in interest rate and charges are further compounded.  For example, a saving of 1% on $400,000 is only $4000; on $1 million it is $10,000 p.a.

3. Because commercial loans are tax deductible the debt will generally exist for a far greater period than for a residential loan, as you are less likely to aggressively reduce the debt. Again, any interest rate saving is further compounds because of the longer loan life.

4. Many commercial lenders do not heavily advertise their services.   There are many varied sources and ‘shopping’ for a competitive product involves more than simply calling a few major trading banks.

5. Some of the cheapest commercial finance packages can be sourced in a ‘wholesale’ manner directly out of superannuation funds and the like.   This by-passing the expensive operating costs and profit margins of the banks. Not to mention the bureaucracy!

6. Other variations may make alternate lenders more compelling as some:

1. Do not require financials
2. Do not require annual reviews (most banks will)
3. Require smaller deposits
4. Have nil application fees

7. What may seem like a competitive rate when first quoted may actually prove uncompetitive when fees are considered.  Commercial loan fees are often linked to the loan amount and carry different names such as ‘line fee’, ‘administration fee’, and ‘facility fee’.   The fee may make the ‘effective’ rate more by up to 1%. This must be considered when comparing pricing between funders.

8. You do not have to simply go back to your existing bank, who you may have current debts with or from whom you have previously borrowed.  This in fact may prove detrimental, as they are less aggressive in pricing your facility and know they have no competition.  They will also quite often cross-secure funding against other assets.  This may prove dangerous if they later change their policy and ‘call-in’ the debt or if you have a lean year and do not pass your ‘annual review’ satisfactorily.  It is better to use a range of funders and to keep your assets separate.

9. Most major lenders set their loan pricing based on the purpose of the loan not the security property. This means that whilst you may use residential property as part of a security for a commercial or business loan facility, in most cases they will charge you a higher commercial interest rate.  Did you know that many smaller lenders would actually lend you the money at cheaper home loan rates regardless of the purpose of the loan?

10. Are you sick of your business bankers and relationship managers being constantly moved about by the banks?  Is the next guy inferior to the last?

Has any of this information got you nodding your head or considering your position?  You need a commercial finance expert to represent you and fight for the right product and best pricing.