Friday, May 18, 2012

Understanding The Basics Of Business Finance

For those new to the world of business; there will no doubt be a great fear encompassing your every thought; after-all in a post-recession economy that still remains riddled with cracks, is commercial success a possibility or simply far too much of a risk?

Understandably, for quite some time there will remain a fear that any and all financial movements could quite positively be rendered futile however, business finance is very much a possibility; it is simply all dependent on the route you take.

Banking lending has, for quite some time remained locked under tight restrictions particularly towards the small business however, with an alternative lender; a range of commercial financing can be made readily available.

Naturally, during a time in which the UK economy is still heavily struggling, it may seem like a resoundingly viable option to simply opt for property rental however, a business mortgage possesses a great deal of benefits and long term rewards including the inevitable ownership of a property and a viable source of equity.

If you have a proven business model and a strong financial background then it would be wise to seek out the appropriate lender and discuss the right solution to suit your business. A commercial mortgage broker is a finance specialist with access to a mass portfolio of lenders; in effect, providing you with a greater opportunity at sourcing the right solution.

It is wise to remain aware that the commercial mortgage process is difficult and will require a huge commitment from yourself. Whether you opt for a fixed rate mortgage that will protect you from any rocky changes, a variable rate mortgage that will offer lower initial rates or an interest only mortgage that will allow you to lower the overall costs that you will face on a monthly basis; you will, before anything, need to provide solid financial details and a strong business plan amongst other information to begin your application process.

The broker dealing with your application will potentially use specific markers to determine your lending capability, the first is the loan to value ratio; a figure calculated by dividing the desired borrowed sum by the value of the commercial property, the lower the ratio, the more suitable the candidate. An alternative marker is what is referred to as the Debt Service Coverage Ratio; a figure which is calculated by dividing your net operating income by monthly interest and mortgage payments. This specific figure is established to determine the risk level of a prospective, with a DSCR of 1.50 and higher deemed a substantial marker for lending.

Once your business is deemed viable; a broker service will set up your business on the desired mortgage for whatever time period is deemed acceptable and your business and of course the monthly payments can begin. Be wary however, that a commercial mortgage is a serious form of lending and you will, under any circumstance; have to make your payments.

Make yourself aware of the business lending, the options and the risks that stand before you and business success.

No comments:

Post a Comment