Great Lending Options:
Recently I had a meeting with Westpac’s Business Development Manager in Hamilton. We talked about great lending options that could work for you and your business.
Commercial Property:
If you are an Owner-Occupier, then Westpac will look at lending 100% of the Commercial Property cost. This can be very helpful in two situations:
- You are a business owner and want to buy a premises for your Business. With so many vacancies at the moment, it is a great time to buy a commercial property at a discount, and then add value through becoming the tenant.
If purchased well, it is possible to increase the value by 50% through having a good tenant.
For example, purchase an empty building for $500,000, then move your business in as a tenant, if done right the building could then be worth $750,000, giving you an instant gain in value of $250,000.
- You currently own the commercial property that your business is the tenant of. Westpac would look at refinancing your property to 100% to give you extra cash to put into your business to improve its position. If you are getting behind with creditors, or have high interest debts on vehicles or credit cards, this could be a great way of injecting some cash into the business, or reducing the interest paid.
Even better, Westpac will look at favourable terms to help you.
For example they may allow 75% of the loan to be interest only for 5 years, with only the remaining 25% being Principal and Interest.
Plant and Equipment:
If your business needs new equipment, traditionally businesses look at second tier funders, who charge higher interest rates. For good business clients, Westpac will look at funding 100% of productive asset costs, but at more reasonable interest costs. So items like Forestry equipment, Trucks and Earthmoving machinery. If you have existing funding in place, Westpac can also look at refinancing these.
Banks and lending options are constantly changing, and sometimes they can do the unexpected (like 100% on owner occupied commercial buildings). So if you are looking to buy something new, shop around the different lenders as they are not all equal. Also if you have existing lending, it may be possible to refinance this at cheaper interest rates, or a better level and terms.
Market Salaries:
Over the last couple of years there has been a lot of talk and discussion by tax professionals about the Penny and Hooper case. This case was finally decided recently in the Supreme court. A few important points following the case
- Commercially realistic salaries are required
o For our clients we often look at salaries obtained by similar professionals or by Locum workers.
o We try to ensure the salaries make sense. For example, if the Husband is the main earner and provides the majority of the services, it wouldn’t make sense for the Wife to be paid more from the business.
- IRD Revenue alert – For businesses where the majority of the services are provided by one person, this person should receive 80% of the profits
- There can be cases where a business doesn’t need to allocate fair market salaries such as if the business is making a loss, or if the business is retaining funds to purchase major assets (but these must be purchased in the short term)
- If a larger business with major assets, funds introduced and/or other staff, then Penny & Hooper case has less relevance. But salaries should still be realistic.
Congratulations to the All Blacks!