Business Leasehold Finance – Does it Cost Too Much!

The commercial leasehold sector is one of the biggest if not the biggest business sectors here within the UK. There approximately 10 million commercial leasehold businesses trading today with perhaps as many as 20% of them changing proprietor each and every year. Businesses of this type trade in the health-care, leisure, licensed and retail sector, most are located on every high street. Many can experience difficulty raising “Commercial Leasehold Loans” to buy or re-finance these kinds of business without some kind of extra security.

Poor support from traditional lenders for this massive market-place comes as an unwelcome surprise to many prospective leasehold business buyers. The plain reality is, that financial alternatives are strictly limited when it comes to raising loans for either the purchase of a short leasehold business or to raise capital to improve or expand the business. The single most important reason that finding a loan in this business sector is so tough is that the length of lease available on the associated commercial property is typically 21 years or less. As mortgage lenders require a minimum period of circa 40 years remaining on any lease after a mortgage loan has been repaid, equity in other property is essential for main-stream lenders to even consider any application for funds. Even with the re-assurance of a “legal charge” over another suitable property many mortgage lenders will still be unable to tender any kind of short leasehold loan, viewing these businesses as high risk enterprises.

To fund this type of venture it is always advisable to find a specialist commercial finance broker with an in-depth understanding of the business leasehold finance sector. The severe lack of competition and therefore limited availability of loan options in this financial area leaves room for some very high cost lenders to operate in this market-place. A good broker will identify a low cost option, avoiding the possibility of selecting the wrong business leasehold lender and therefore what could be a very costly error. In short, leasehold financing definitely does not have to be expensive!

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Balance Transfer and Housing Finance

The Indian immovable property has come of ages. Consumer is the King now and gone are the days of monopolistic behavior. And definitely, if you are the one with sound financial background and impeccable credit record you can strike a better deal with the banks in terms of interest rates and other payment conditions and purchase your dream property without any hassle.

Interestingly, the same criteria is equally applicable on those, as well, who have already availed a loan from a bank. Near about all the major public and private sector banks in the Indian banking system are now offering the option of ‘Balance Transfer’ on housing finance. Often, banks in the housing finance sector tend to increase the interest rates when the benchmark interest rates increase. But, such alacrity is not shown by them in decreasing rates whether the Repo rate comes down or not. In such circumstances, balance transfer help the customer a lot. He can replace the higher rate loan and avail a lower rate one by paying some extra charges. These charges are lower compared to the total payable interest.

What is Balance Transfer and how is it relevant in the housing finance?

There are times you find that the interest rate on your home loan is at a higher level. Take an example. Suppose you were paying at the rate of 10.5 per cent per annum. This rate is quite high in comparison of 9 per cent offered by some other bank. In such cases balance transfer of housing finance comes into rescue. You can trigger off the balance transfer option with your existing bank or lending institution, under which the unpaid portion of your housing finance would get transferred to your desired bank, thereby taking benefit of the difference in the housing loan interest rate.

Things to take care of at the time of balance transfer:

* Tenure of loan amount should be taken care: Ideally, you should consider taking the balance transfer option when the remaining part of your payment period is more than 5-years and in such a case you have the time for speculative gains. There is no profit in transferring the home loan from one bank to another if you end up paying early payment penalty and other processing charges even more than the difference of housing loan interest rate and the amount you had to pay towards interest in the normal condition.

* Early Payment Charges associated with the housing finance scheme: Banks like State Bank of India, IDBI and ICICI offer benefits like exemption of the early payment charges to your existing bank if you transfer the balance. So you must confirm the same with the new lending institution that are they ready to deal with this matter. Otherwise, the deal is not profitable.

* Additional charges involved with the loan amount: You must confirm that the desired amount for your home purchase loan is perfectly at par with the balance you had in your previous bank. It may be the case that that your new bank pays all early payment penalties and processing charges on your behalf and later add the amount to the principal of your housing loan. So, in such case your total owing remain the same and the transfer is not profitable. In this situation, you have to suffer the impact of debt compounding, which does not favour you in the long run.

Seeking balance transfer as a burden reduction option needs the similar degree of caution and study that you undertake while taking housing finance. Definitely with balance transfer, you can save a considerable amount of interest charges under this option once you strike the right chord!

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Corporate Finance Definition

Corporate Finance is the process of matching capital needs to the operations of a business.

It differs from accounting, which is the process of the historical recording of the activities of a business from a monetized point of view.

Captial is money invested in a company to bring it into existence and to grow and sustain it. This differs from working capital which is money to underpin and sustain trade – the purchase of raw materials; the funding of stock; the funding of the credit required between production and the realization of profits from sales.

Corporate Finance can begin with the tiniest round of Family and Friends money put into a nascent company to fund its very first steps into the commercial world. At the other end of the spectrum it is multi-layers of corporate debt within vast international corporations.

Corporate Finance essentially revolves around two types of capital: equity and debt. Equity is shareholders’ investment in a business which carries rights of ownership. Equity tends to sit within a company long-term, in the hope of creating a return on investment. This can come either through dividends, which are payments, usually on an annual basis, related to one’s percentage of share ownership.

Dividends only tend to accrue within very large, long-established corporations which are already carrying sufficient capital to more than adequately fund their plans.

Younger, growing and less-profitable operations tend to be voracious consumers of all the capital they can access and thus do not tend to create surpluses from which dividends may be paid.

In the case of younger and growing businesses, equity is often continually sought.

In very young companies, the main sources of investment are often private individuals. After the already mentioned family and friends, high net worth individuals and experienced sector figures often invest in promising younger companies. These are the pre-start up and seed phases.

At the next stage, when there is at least some sense of a cohesive business, the main investors tend to be venture capital funds, which specialize in taking promising earlier stage companies through quick growth to a hopefully highly profitable sale, or a public offering of shares.

The other main category of corporate finance related investment comes via debt. Many companies seek to avoid diluting their ownership through ongoing equity offerings and decide that they can create a higher rate of return from loans to their companies than these loans cost to service by way of interest payments. This process of gearing-up the equity and trade aspects of a business via debt is generally referred to as leverage.

Whilst the risk of raising equity is that the original creators may become so diluted that they ultimately obtain precious little return for their efforts and success, the main risk of debt is a corporate one – the company must be careful that it does not become swamped and thus incapable of making its debt repayments.

Corporate Finance is ultimately a juggling act. It must successfully balance ownership aspirations, potential, risk and returns, optimally considering an accommodation of the interests of both internal and external shareholders.

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