Commercial Property: Get Your Loan Structure Right


WHEN LOOKING AT debt strategies for any business, there are a number of aspects you need to consider. These would include things like … asset protection, interest rates, fees, ongoing service requirements, access to capital, alternative products and so on.

The weighting for each of these factors will depend on the particular transaction.

For example: A business in a strong growth phase will place greater emphasis upon accessing capital, than the interest rate. Because that business owner would be expecting the increase in profit (resulting from having more capital) to largely outweigh a higher interest rate.

Different reasons for seeking business finance can present different challenges, when you come to structure a loan.

These might include … improving cash flow, paying creditors, acquiring assets, paying out partners or directors, to name a few.

The actual size of the business can also be a key factor — simply because small businesses often have very different requirements from larger businesses.

What are Your Options?

The various types of business loan structures can be summarised as:

  • Property-secured loans, using your residential or commercial property;
  • Business loans secured by other assets within the business including … chattel mortgages, debtor finance facilities and cashflow lending (such as rent rolls and financial planning books); and
  • Unsecured loans covered only by guarantees from the business and/or directors (including credit cards, unsecured overdrafts and unsecured cash advances).

Any business finance will involve one (or a combination) of the above type of loans.

Of these categories, property-secured loans are generally the cheapest and most flexible. But of course, there is also the issue of asset protection. And how much consideration you give to this will depend on your individual business.

However, if you are in an industry with a higher risk of litigation or with more complicated structures, you will probably need to place higher emphasis upon asset protection.

Bottom Line: The key to getting the most suitable loan structure is knowing upfront what you want to achieve. And then, discussing with your professional advisor the ideal mix of loans, to help you achieve your desired outcome.