Property finance sums up all the activities (typically lending and borrowing) that occurs in the real estate business. It is the name given to the activities that aid property owners in their quest to construct, purchase or rent commercial, industrial and/or residential buildings. Property finance is typically a means through which capital is earned to finance construction, purchase or rent.
What Is Property Finance And How Does It Work?
Property finance is a specialized area of finance that is focused on all that is related to financing a property. It works just like a term loan but it has a maximum duration of 10years for repayments. This means that a property finance loan he a maximum term of 10years and all payments should have been concluded with in that period. With property finance, the property would belong to the lender until all payments have been concluded. Unlike most term loans that allows you to retain the ownership of your property until you are unable to make payments, property finance makes your lender the rightful owner of the property until you complete payments.
When the loan has been fully paid up, the title deed of the building will get transferred to the name of your business. Generally, the building that is being purchased or constructed would act as the collateral for the loan, you should know that you would still be required to make a deposit before the loan might be granted. The deposit you would be required to make would typically depend on the market value of the building at the time of purchase or how much it would be worth after construction is complete. The type of building and what it would be used for, will also determine how much collateral and/or deposit you would need to put down.
If you are unable to keep up your commitment to the loan and unable to make repayments, the lender has a right to sell up the property and use it to recover the loan. This is mainly easy for the lender because the deed titles is their name until you have paid up the loan. You are required to make deposits alongside providing a collateral because the value of the loan is typically higher than the value of the property. So there has to be an additional assurance for the loan to be granted.
The type of building and the use of the building that is to be constructed or purchased is one major criteria that is put into consideration for the loan to be given. Buildings that are typically supposed to be used for a single special purpose are usually difficult to sell and might be difficult to be approved for a loan. For instance, if a building is to be used as a dance school, it might be difficult to sell if it is used as collateral for a loan. This would mean that the lender might risk a loss if the borrower is unable to pay up the debt.
Five Ways Property Finance Can Help Your Business
Property finance can be an explosive decision for your business especially if you are the owner of a small and growing business. You can use property finance to fund your business, thereby ensuring the growth of the business. Taking up a loan to fund various aspects of your business are capable of taking different forms and helping your business in the following ways:
● Funding for new contracts
Winning new contacts for the business can be pretty exciting. Getting new and sometime bigger contracts would mean you get new customers, thereby increasing the revenue made by your business. More revenue guarantees ability to hire good employees thereby increasing productivity and growth of the business. Even though the quality of your services would determine the contracts you receive and how large they would be, your ability to carry out the contract would depend on the funds you have available.
Taking a loan to carry out a contract would ensure that you have enough funds to carry out the contract appropriately. Depending on the value of the contract and what would be your profit after you have carried out the contract, you can decide to take up a loan to fund whatever resources you would need for the contract. The money from the loan can be used to buy raw materials and hire more workers, to ensure the smooth running of the contract.
● Funding to buy new equipment or machinery
You can decide to try out different financing options to get tools and machinery for your business. Depending on the needs of your business, you can get the tools and assets that would help to make production easier for your business, thereby helping to increase the revenue of your business. Using a financing option would mean that you get a large amount of tools for your business at a large amount that you are allowed to pay in installments. You might have the option to not pay cash upfront and this would mean that you get to focus on other commitments required for your business to grow.
Also in an instance where you take up a contract from a large scale company, rather than actually buy the tools and machinery needed to render services wanted through the contract, you can decide to invest in a company that already has the machinery needed. You can ensure production by making use of their own tools and you would not need to completely influence the cash flow of your business.
● Financing to pursue new market
It makes sense to try to go after new markets to develop the growth of your business. Venturing into various services either related to what your business offers or something new entirely, would mean that you get new and sometimes larger customers. Getting new and better customers who are interested in what your business has to offer would thereby help to increase the revenue made by your business and ensure the business grows. To do this however, you would need enough resources and it would make sense to get finance to get the resources. You can take up a loan to get these resources and when you have broaden your market coverage, you would be assured more revenue that can be used to clear up your debt.
● Funding for a new premises
The main idea behind starting a business is to watch it grow and develop. When your business grows, it is important to consider expanding or moving into a new premises as a means to ensure you are able to effectively manage the business. Deciding to expand your business premises or to move into a new building would require funds that’s you might not be able to handle on your own. Property finance would come in handy in situations like that. It helps to make your decision to purchase, construct or rent new building(s) easier to achieve.
To put it simply, property finance is mainly interested in growing your business by providing funds to various things you can venture into that could ensure its growth. You have to understand exactly what your business needs, how you can get the funds and you can repay whatever debts you might incur. You also need to ensure that you weigh your options before taking the loan, if you are not going to earn enough revenue to clear up your debt and still keep your business running, it might be safer to not take up a loan.