Business Loan for Personal Investment Queries

[Bandita]

Hi all! It's been awhile since I've been on here! We've been busy building our family investments (liabilities ) over the last few years, hehe, but ready to get back into our financial investments again

Abit of background - We are looking to put money in my husband's business (pharmacies) to buy into as much as possible our available partner share of 33%. We are unable to secure against the business (pharmacy won't allow it), so we need to secure against the equities in our properties. We were originally looking at just another home investment loan, however we are maxed out servicibility wise and will need to use the profit share income of the business we will be entitled to upon investing with this loan in order to service it, therefore it's looking like it will be Business loan for personal investment.

Although we're shopping around abit at different lenders, I'm pretty keen to stick with our existing lender, ANZ to save some big hassles - I am no longer working, 'just' a mummy , which really decreases our servicibility, and we have 2 properties in a HDT which I know can get very messy with other lenders. So we're more limited than we used to be, and after a couple months of answering a zillion questions, ANZ has given us the OK for a $380k business loan. BUT, I still want to get the best I can from them, so.....

My questions are -

1. what is the 'standard' (via big banks at least) variable rate and discount for Business loans for Personal Investment? We're currently with ANZ, break free package, getting a 0.9% discount off our home loans (which gets us to 4.98% variable) The personal business loan offer has a rate of 7.66% minus a discount margin of 0.78%. Standard? Good? Bad?

2. Is the discount margin for personal business loans similar to home loans? Is it something I can push for more than 0.78%?

3. If we decide to go with ANZ, before signing this loan offer, I want to go back requesting a higher discount to our break free package discount rate (currently 0.9%). We currently have just over $1.32M in home loans with them, plus this business loan. I asked before to increase it and they wouldn't unless we increased lending, which we would now be doing - what's the highest discount you've seen with ANZ with $1.7M in lending? Can I push for 1%?

Thanks for reading

 

[Shahin_Afarin]

I am not a huge fan of ANZ's residential policy but I think their commercial lending arm is very solid.

If ANZ's has given you that rate for a business loan then I would take it because its excellent however are you able to confirm if that are holding anything for security.

If you have other lending with ANZ then you can certain push for a higher interest rate. Their risk is considerably lower since you have you resi lending with them.

Just make sure that they are not tying up your resi security with the business loan. They love doing this.

 

[Bandita]

Hi Financeshop,

Yes, they are using the equity in our 4 properties as security......we've been really good so far as to have all 4 properties completely separated (no x-coll at all) - but this business loan will be secured against all of them.....not so great but I'm not sure if we have any other options (at a decent rate?) since we are unable to secure against the business.....??

 

[Shahin_Afarin]

Thats why the rate is so good - I thought it was a bit too good to be true to be just secured just by the business.

I obviously can't see all the details but why are you not securing the loan just against the business? Sure the rate is going to be a bit higher but the trade off is that your properties are not crossed. Or at least cross it with one property if you are looking to reduce the rate. I would personally clear away from crossing even in this situation but its horses for courses.

 

[Bandita]

Oh we'd LOVE to secure against the business, and keep the properties out of it totally, would have done it years ago if we could, but we can't - the company (pharmacy) my husband is a partner of (and buying into) won't allow it, no one can secure against them so it's not an option, and without using our properties as security, I'm not sure what if any other option we'd have??

 

[Shahin_Afarin]

Is there enough equity against the properties to do a separate equity release and fund it?

 

[Bandita]

It will be one separate loan (based on the increased equity) against the 4 properties - so when it's paid back, they would be uncrossed again....is this what you mean?

Or do you mean as in 4 more separate loans (1 using each property?). Would they do this for personal business loans? I think our main issue is servicibility and probably needing the extra security to get us over the line? We're definitely maxed out 'normal' home loan wise since our approval was all done years ago when I was still working. So now, we have to use the profit share we will receive from the business once we buy into it to service the loan - which will be fine for us as it will cover it easily, but risky for the banks from what I understand, I don't think any of them would lend to us without using all the properties together?

 

[Bandita]

Also, meant to add, all our existing 6 uncrossed loans would remain as is (assuming we stayed with ANZ, but I'd try to do this even if we moved banks, what a nightmare haha!)

 

[Shahin_Afarin]

I am referring to doing a separate equity release against each property up to 80% as separate loans (not crossed).

ANZ has extremely conservative lending so you *may* be able to service stronger via another more generous lender.

Here is an example of what I'm talking about:

Property 1:

Value: $500,000
Current Loan: $340,000

For this property you should do an equity release up to 80% - so thats $60,000 equity release.

Property 2:

Value: $600,000
Current Loan: $400,000

For this property you should do an equity release up to 80% - so thats $80,000.

So you have done an equity release of $60,000 against property 1 and $80,000 against property 2. Both are standalone (i.e. not crossed) and at 80% LVR.

 

[Bandita]

I think with what they've done, we're going higher than 80% (looks about 83.5%), but not paying more LMI, there's no LMI in the business loan dept apparently? This is probably why we need to x-coll?

So will look something like this

Total property value: $2.040M
$1.326M existing (6 home loans, all un-crossed)
$380k new business loan (secured against 4 properties).

My husband really wants even more than that (we can buy in upto $1.6M, profit share will be about $333k once we do, so hubby sees that as lost money at the moment.....). I don't think that would be possible without crossing the loans though? I think NAB and Westpac will go higher (that's all we've spoken 2, 2 properties are in a Hybrid Trust, so limited, I'll setup a different post query on that I think), but we'd still have to cross from what they were saying, but could even possibly go upto 100%.....no LMI though, sound right?

 

[Shahin_Afarin]

They are doing a mix which is common in business lending. They can do lending on the business alone without the use of any resi security. They are just crossing your existing property to reduce their risk.

It all sounds right but I think you should cross the bridge of doing equity releases of up to 80% against the existing property (valuation will be a big variable here) and then do the business loan separately. Then weight this up against the current proposed structure.

 

[Bandita]

Thanks!

We are already serviced to the max resi loan wise (from my understanding at least), and the only way we can use the profit share income we will receive once investing in the business, is to go business loan (I think at least??). Resi loan can't use that income (future profit share) to determine whether you will be able to service a loan, only current income, and that won't cover anymore lend for us unfortunately.

I assumed it was likely rental return when we first went into this (bank will use future rental return as income to determine loan value), but they won't do that with business income, for a residential loan at least, from my understanding, but I would very much like to be wrong about that!

It's like we're maxed out, yet we're not......I'd be open to ideas for sure though.

 

[Bandita]

Oh, and bank has already done all the valuations.

 

[Mick C]

Shahin advice is solid.

To fund for business if you dont or can't use the business as "security" than you really only have 2 options

1. A combo business/resi mixed loan (crossing) - ANZ and Westpac is probably the top 2 players in this sort of makret.

2. Resi equity release - Def more favorable and common. Rate is your standard resi rate <%5 and resi conditions. NO crossing as well (As per Shahin's post)

And yes you can def ask for a 1-1.05% discount on your ANZ resi loan given your loan size; just a matter of asking.

 

[Shahin_Afarin]

Thanks!

We are already serviced to the max resi loan wise (from my understanding at least), and the only way we can use the profit share income we will receive once investing in the business, is to go business loan (I think at least??). Resi loan can't use that income (future profit share) to determine whether you will be able to service a loan, only current income, and that won't cover anymore lend for us unfortunately.

I assumed it was likely rental return when we first went into this (bank will use future rental return as income to determine loan value), but they won't do that with business income, for a residential loan at least, from my understanding, but I would very much like to be wrong about that!

It's like we're maxed out, yet we're not......I'd be open to ideas for sure though.

The question is what if another lender gave you a more favourable servicing and valuation combo? Long shot but possible without a lot of work and zero credit enquiries.

 

[Rolf Latham]

Obviously the transactional banking for the business is not with anz

Ta

Rolf

 

[Bandita]

Haha, no it's not Rolf.

TheFinanceShop - yes, we would look into another lender, most definitely. Or I'm thinking more and more now maybe moving some of the properties rather than all......Can mortgage brokers do personal business loans? We've gone to our usual broker, who I really like as he knows Hybrid Trusts, but they aren't licensed to do personal business loans and can't help us unfortunately.

 

[Shahin_Afarin]

Some brokers just do resi and some can do other types of finance such as commercial or business loans.

Just speak to him about running a servicing calculation with of course the more generous lenders such as AMP and NAB and then order an upfront valuation (luckily both these lenders can provide upfront valuations).

From there you can determine whether refinancing the resi part is feasible whilst ascertaining the business loan via ANZ.

 

[Blacky]

My husband really wants even more than that (we can buy in upto $1.6M, profit share will be about $333k once we do, so hubby sees that as lost money at the moment.....).

Bandita
Ive just been reading through some of your threads - welcome back after your 'hiatus'.

I dont fully understand how you are "at your servicing limit?". Unless the lenders are not including the additional income from the profit share of the business?

While Im not a huge fan of them - St George bank used to have a good business product specifically targeting pharmacies. So that could be another option?

Hope you sort something out.
Blacky

 

[Bandita]

Bandita
Ive just been reading through some of your threads - welcome back after your 'hiatus'.

I dont fully understand how you are "at your servicing limit?". Unless the lenders are not including the additional income from the profit share of the business?

While Im not a huge fan of them - St George bank used to have a good business product specifically targeting pharmacies. So that could be another option?

Hope you sort something out.
Blacky

Thanks! I actually stayed up half the night last night reading your development thread! wonderful thread, couldn't stop reading! I really hope you do well with the townhouses, and I think you will, great that they're cashflow neutral already

Yep, that's our main issue, most lenders won't include our (future) profit share income at all. And since I've stopped working, not having that income (serviceability wise) hurts us big time. BUT, we're starting to see some ways around this, and should hopefully be getting somewhere soon. St George is actually one we're looking at. Once we do get this loan, I believe our serviceability issues will soon be easy again as our cashflow will be so much higher, so I'm even more conscious now that we need to set this up right to begin with and not x-coll ourselves silly so we can't move forward with something else once when we're over this hurdle. We'll get there!