October 12, 2014 / q9nd6F / 0 Comments
Best Mezzanine Finance Options Available in NZ Today
Generating the capital necessary to start a business that needs a significant amount of money to get going is a difficult process for many people, especially those that have never started a business before. You may have the best business plan, be thoroughly researched and be highly organised with a compelling action plan, but without the financial capital to actually purchase what is necessary to get your business up and running, you may never see your company get off the ground floor. Fortunately, there are many lenders in the world today that are looking for start-up companies that they can invest in because they see profit potential. Unlike a regular bank that is simply looking at your monthly income, your credit rating, and your ability to make your monthly payment, these investors are looking at a much bigger picture, the potential for generating substantial amounts of revenue. NZ mezzanine finance options are available for many people, but they may not be the best choice for everyone. Here is a quick overview of what you can expect when you are considering mezzanine financing options, and how you can also benefit from using these investors.
Overview Of Mezzanine Financing in Auckland and New Zealand
When you are dealing with investors that will allow you to borrow money to start your company, some of them are not looking for collateral but a financial stake in the company itself. Many of them will accept common shares, representing their claim on the company, which will increase in value once your business starts earning profit. This type of lending is called unsecured lending because, unlike a traditional mortgage which uses the business owner’s home or company-owned buildings as collateral, these investors are essentially wagering that you will be able to get your company up and running, making substantial profits, which will also benefit them. However, to offer this type of financing without collateral, to compensate for the risk they are incurring, they will always request a much higher interest rate. If you have ever been in a tight financial situation where you had to use a payday loan company to borrow a couple thousand dollars on a moments notice, the high interest rates that are charged by payday loan companies are done for the same reason that mezzanine capital lenders charge high amounts.
Understanding How Mezzanine Loans Are Structured
The financing for mezzanine loans usually consists of what are called preferred stock or subordinated notes. These financiers are looking for a specific rate of return on their investment which can be paid in various ways. Similar to a regular loan, you can make periodic payments to the lenders for the outstanding balance that is owed to them. The amount of interest that you pay will be dependent upon whether you are borrowing money with a fixed or fluctuating interest rate. It is always preferable for the borrower to get a fixed interest rate so they will know exactly how much they have to come up with each time they make a payment. You can also do what is called a PIK loan (Payment In Kind) and interest rate which does not require a monthly payment, but simply adding what you owe to the actual principle amount of the loan you have borrowed. Each and every company that you work with is also looking for some type of ownership in the company that they are starting. In fact, the reason that they are lending you money is because they believe, to some degree, that your ideas and business will work. Mezzanine capital is usually provided with what is called an equity stake in the company itself, a form of collateral that is very different from a traditional loan.
Other Reasons For Looking At Mezzanine Finance Options
Finding mezzanine finance
If you are not starting a company, but you would like to acquire a company, this type of financing is often used for what are called leveraged buyouts. this money is used in conjunction with other forms of financing including second lien loans and senior loans, and are often used as a measure of last resort. If it is a very equitable deal, both the buyer and the mezzanine lender will see the profit potential, and will work together to make this work. Mezzanine finance options are also considered with financing real estate projects, sometimes used by developers to make sure that they have enough money to complete the project. The collateral and this type of financing is a stake in the property that is being developed, making this a very lucrative deal for mezzanine financiers. All of these reasons for utilizing mezzanine capital are always designed to help both the borrower and lender achieve a substantial amount of profit.
Finding mezzanine finance in NZ
There are a few finance providers who can provide this type of funding to New Zealand businesses. Most are unknown to the general public. You can ask your lawyer or accountant for references as they will frequently deal with different finance firms on behalf of their clients.
Another option is to search Google and look for “mezzanine finance in NZ” or” mezzanine finance in Auckland”. One of the service providers you will find is Global Pacific. They are among the leading finance companies in the country and work with many clients on all sorts of commercial projects. These range from property development, through company acquisition to equipment financing and many other types of commercial funding work.
If you have a requirement for mezzanine finance in NZ, be sure to visit the Global Pacific website for more information.
September 10, 2014 / q9nd6F / 0 Comments
Financing Your Business Equipment with Third-Party Credit in NZ
If you run a business, you are fully aware of the financial challenges of running as well as trying to expand the business. Money is the vital element that plays a role in building a reputation for the business. But at most stages in the development of any business getting access to funds to finance the growth is a challenge. Whether you are a start-up, an established business or a mature company, cash is always a problem. As a result companies often need businesses equipment finance to fund their next stage of development.
Let’s take a restaurant as an example although much of the following applies to any other small business operating in New Zealand. Some trading days are just bad, making things worse for an already financially tight situation. The restaurant will always have a flowing stream of cash but unfortunately too often it is with more flowing out rather than in. You just wish it was the opposite of this. All these issues leave you wondering where you can get that much needed money to buy the new cookers and other kitchen equipment for your restaurant.
These ideas might come across as negative views, but they are undeniable truths; even the most successful establishments will face financial struggles as they try to expand the business. So, the big question remains – which is the best way of financing a restaurant business?
Loans
Loans are always a quick call, but it that should a second thought looking at it from a lender point of view.
Deloitte & Touche LLP did a Restaurant Industry Operations Report in 2004 that indicated 4-7% pre-tax profit margins for restaurants. This finding suggests that lenders view even profitable establishments to be a huge risk. Then again, as is the case with loans, the bigger the risk the higher the interest payments are. This situation goes to show the level of financial strain that a low margin business like the restaurant trade faces.
On the other hand, financial creditors or lenders will gravitate towards your request for a loan if you own the restaurant business. You can place the business as a security against the loan but this is yet another risk. The lender will view it from its resale value, which might also not be that high as you hope. This will depend on the chances of finding a potential purchaser who can buy the property and there may not be as many as you expect. This will then lower the resale value of your establishment and hence the possible loan amount.
So, when seeking some financial support for funding plant and equipment finance, the ideal course of action is to talk with a third-party lender who has the expertise in the restaurant industry.
Accounts Receivable Factoring
Factoring is the sale of accounts receivable at a discount in order to accelerate the cash flow in the business. This is an option to take if a business seeks to get the money it needs to finance its expenditures without having to wait for outstanding invoices to be settled. For this reason it is also called cash-flow finance or invoice discount financing.
This makes accounts receivable factoring a good option for any business that is looking to get some quick cash with little risk and relatively low cost.
Private lenders to NZ businesses
Another source of finance is from wealthy private finance sources. These may be business people, trust funds or people with high nett savings. Often these people are looking for a better return than they can get from a bank deposit. And often they also have experience they can offer too which will further help the business owner. However for this article we will only consider the finance aspects.
The problem with this type of finance is that it is not widely advertised. Some magazines will run adverts but largely this source of funding is hidden from the public eye. So to get access to it you need to work with intermediaries who can either make an introduction or will carry out the negotiations on behalf of both parties.
You can look for commercial finance brokers who can act for you to gain finance from these wealthy financiers. Another benefit is that these private lenders are frequently willing to look at investments or loans which the main banks will not consider including equipment financing.
Typical funding projects
If your business needs some unusual and expensive plant or equipment, a bank may help but they will take a charge over the piece of machinery. You may need funds for:
- Furnaces
- Production lines
- HVAC systems
- Chillers
- Road and construction machinery
These can all be funded using private funding for NZ equipment finance.
Global Pacific Finance is one of the leading commercial finance brokers in NZ. They can help many businesses to find equipment finance in NZ.
August 19, 2014 / q9nd6F / 0 Comments
Helping Businesses By Using A Commercial Mortgage
A lot of businesses have their companies operating in rented premises yet are they overlooking the advantages of owning the building by means of a commercial mortgage? Generally it is a cheaper option to run a business out of rented premises yet there are numerous benefits to buying a property. If commercial property piques your interest, then this article might help you decide on the best way of getting a commercial property mortgage.
The advantages of a commercial mortgage.
When renting a property for business use, obviously you have to allow for the regular payment of the rent. This is easy to build into your cash-flow projections. Moreover rentals keep rising at regular intervals often at pre-agreed rates, like CPI or an agreed inflation amount. These are written into the rental agreements before they are signed.
Commercial mortgage for warehouse – image photoraidz
However, typically the lessee also has to pay for repairs, maintenance and other variable costs. These can play havoc with cash-flow plans.
The rental can be avoided if you have a commercial mortgage on your building.
There is also the added advantage of the property appreciating in value with time, as most real estate does. If you are leasing the premises, the owner gets the benefit of that growth in value of the property. If you are the owner of the building then you are the one who makes that financial gain.
Commercial mortgage gives you a piece of mind that owning a property does. You do not have to base your business on the vagaries of a landlord. This is not a small measure; imagine the costs of relocating if the landlord decides to sell.
The interest that you pay towards the mortgage is tax deductible, making for a more prudent tax planning.
One final major benefit of being a commercial building owner is that if by chance you happen to buy a large enough property that more than houses your business, the vacant premised can be let out to tenants. This brings in additional revenue as rent and spreads your risk. Currently there is a severe shortage of office space in Auckland so the chances of being able to rent out spare space are quite high.
The disadvantage of commercial mortgages
As with any type of loan, a commercial mortgage has its limitations too.
Firstly, most deals have to be started off with a down payment. For a commercial building this is typically 40% of the value of the building as most lenders will only go to a 60% mortgage.
This can be a substantial amount of money to be paid out at a one time. It can be even more stressful if you could use that money to invest in your business. What return could you get from growing your business compared to the saving in rent?
If your business is one that is seeing fast growth, then buying your building may not be a good idea.
This is because of the difficulty, costs and time necessary to dispose of any property but this is magnified when trying to sell a commercial property.
Further, being a landlord comes with the added responsibility of making sure that tenants maintain their premises, carry out regular fit-outs as required by most leases and that of course they pay their rent on time. This may cause an additional burden to a person who already has a business to run.
The costs involved with a commercial mortgage
Due to the risks and the costs involved, a commercial mortgage often carries a higher rate of interest compared to other types of mortgages like a residential home loan. No business can be a guaranteed success, and if your tenants are not able to make the rental payments, you are left to carry that repayment cost to the lender.
The legal costs for buying a commercial building are also much higher than for purchasing a home. You need to factor this into your initial costs. The legal fees associated with the leases though are usually paid for by the tenant.
Who should go for a commercial mortgage?
Seeing as the value of commercial premises rises as the rent increases and the value of the property is improved, it makes an attractive investment to certain types of people.
If you have an established company with strong cash-flow, then you could consider taking out a commercial mortgage to buy the building that you use for your business.
Another ideal opportunity to invest in commercial property by means of a commercial mortgage is if you have a Family Trust which has a strong capital base. It is common in NZ for Trustees of trusts to invest in commercial property to provide both capital growth and a solid rental income.
Obtaining a commercial mortgage
– image xedos4
The world of commercial property investment is very different from buying a rental house. For example, the requirements for a commercial mortgage in NZ are much more difficult than a residential mortgage. For one thing, the deposit is usually 40% so you must have a much bigger amount of spare cash you can invest.
You also need to understand how leases work, the notion of Capex, commercial property valuations and many more.
One way to get going is to talk to an Auckland commercial mortgage lender such as Global Pacific Finance. They arrange finance deals of all types including commercial mortgages for investment or property development. If you are thinking of buying the building you operate from or want to get into commercial property investment, give them a call or visit their website to start with.
There are a few finance providers who can provide this type of funding to New Zealand businesses. Most are unknown to the general public. You can ask your lawyer or accountant for references as they will frequently deal with different finance firms on behalf of their clients.
