Some Options For NZ Commercial Mortgages
There is a wide variety of lenders that have decided to close their doors for any new commercial borrowers. For some it was due to taking on bad loans which meant that they were carrying too much debt on their balance sheet. This means that for those who are still in the commercial mortgage market, they are having increased levels of business. This has also meant that some brokers are not taking on nay new business as they do not have ht e capacity to process all of their current lending business. There are some of direct competitors that have even stopped taking new loans, just to be able to process their current contracts. However some brokers are still able to offer excellent options for NZ commercial mortgages.
The way some lenders and brokers have handled this is to focus on certain areas. For example, some may be now focusing only on commercial properties and solid apartment buildings rather than looking at industrial premises. If the risk is lower, then it is easier to get commercial mortgage finance. Other lenders and brokers are still lending to a wide range of projects including, hotels, motels, hospitality venues as well as warehouses.
As the economy improves, the Debt Servicing Ratio is getting better i.e. lower ratios for the economy as a whole. However for the residential and commercial sectors the numbers are different and of course they vary considerably for each individual borrowing entity. For residential properties the banks tend to look at ratios of 35% even higher ratios for commercial properties.
So even though there is plenty of money on hand with the main banks that is available for loans, they are more nervous than a few years ago about taking on risky commercial mortgages. To increase your chances of getting funding to buy you industrial property or warehouse for example, it will help your cause if you can reduce your Debt Servicing Ratio.
You can do this by reducing expenses. Almost every business carries unnecessary expenses which are a drain n their cash reserves. Create a budget if you do not have one already. Then look closely at what you are spending each month and see what you can eliminate. It can be a surprise to many companies how much they can save in outgoings. As far as getting a mortgage is concerned, the effect will be significant due to the multiplier effect of the ratio.
You can also take a serious look at how much you need to borrow. Be ruthless with this as the lower your borrowing requirement, the lower will be your DSR and therefore the more likely it is that your loan request will be approved.
Another obvious benefit of being absolutely honest about the amount you need to borrow is that this will also reduce your outgoings once the loan comes into effect. You will be paying less interest on a lower loan. You might also find that if you can bring your loan below a certain threshold, it will be perceived as a lower risk by the lender and so will attract a more favourable rate of interest for you. This again will lower your interest expenses. A good broker of NZ commercial mortgages will be able to advise you on this.
It may be possible that you can sub-let part of your building to another company. This rental income will be used in the overall calculation to assess your Debt Service Ratio as well as providing an additional source of revenue which can be sued to pay some of the interest. Remember though that this is income and will be subject to income tax so be sure to make an allowance for this in your cash-flow forecasting.
There are many other ways you and options for NZ commercial mortgages or factors to take into account. However, it can be a complex process which requires a lot of knowledge and experience. To make the process easier for borrowers and to learn some of the best ways to present an application for a loan, it is a good idea to talk to a commercial finance broker like Global Pacific. They have a number of brokers who can help and heave experience dealing in many different industries and with various forms of commercial lending.
There is plenty of information available about their services on their website here globalpacific.co.nz.