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Jeremy Lofts: Business Advice column - 12/05/2009
Q. I run a small joinery business and currently rent a unit for storage of materials and tools. I have been given the opportunity to purchase the unit by my landlord, but I do not have the deposit needed for the commercial loan. My mother has offered to give me the deposit, but is this acceptable?
Q. I run a small joinery business and currently rent a unit for storage of materials and tools. I have been given the opportunity to purchase the unit by my landlord, but I do not have the deposit needed for the commercial loan. My mother has offered to give me the deposit, but is this acceptable?A. A lender usually likes to see some commitment from the borrower personally, but if this is not possible, then family support is the next best thing. They will want to know if it is a genuine gift, or if you will be repaying your mother each month, similar to a loan. If this is the case they will factor this in when looking at your ability to repay the commercial mortgage. On a plus side though, quite often the proposed new mortgage may be cheaper than the rent per annum that you currently pay.
You and your mother will need to speak to a solicitor about the technicalities of the gift, and normally a lender will insist on this procedure.
Q. I have run my own manufacturing business for the last eight years and have always held my commercial insurance policies with my bank with which I have my business account and commercial mortgage. The premiums have crept up each year and are now getting really expensive. Can I look elsewhere for cheaper insurance?
A. You will need to look at the conditions of your commercial mortgage offer to see if it is compulsory to hold the various insurances with your current bank. If you are still unsure, it may be wise to ask your bank to confirm the position. If you tell them that you are thinking of looking elsewhere for cheaper premiums, they may be able to look at cheaper alternatives for you. If not, then you would be advised to seek the help of a reputable commercial insurance broker to see if there are less expensive alternatives available. You will need to check your current policies to see if there are any penalties for stopping them, if they are mid-term, and you must factor this into any potential cost saving. Quite often when looking at insurances, it becomes evident that if you have not amended the details of your policy for some years you may well be under insured and this is an ideal opportunity to make sure that you and your business are adequately covered. The premiums may not increase too much and may even go down as the cost of some insurance has fallen over the past few years.
Q. I currently own my own factory unit, which I purchased a few years ago with a commercial mortgage from my bank. The unit is now starting to look a bit dated and I would like to refurbish it. Do I need to let my bank know, even though I have the monies to fund the refurbishment myself?
A. If the refurbishment work you are considering is of a fairly minor or cosmetic nature, then you shouldn't need to let the lender know. Indeed, you will find that you have an obligation under the terms of the mortgage agreement to maintain the property in good order. So, by updating your property, you will not only be satisfying the terms of your mortgage agreement, but making it a more pleasant environment for you, your staff and your customers. However, if you are considering any structural alterations then you would need to seek permission from your lender, as well as looking to see if you need local authority planning consent for the proposed changes..
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