Westminster National is very proud to announce its recent appointment as an Industry Expert with Western Australian Leaders. WA Leaders is focused on inspiring member companies through the provision of knowledge, networks and capital.
Each month representatives from Westminster meet with a range of Leader Series members to share our finance industry knowledge to help these businesses grow and develop.
A recent mentoring session example
We met with a growing food supply business that is currently planning to relocate to larger premises. The company is well advanced with their finance application for fit out and other equipment however noted the considerable stress and legal cost associated with finalising their new lease. Not an uncommon situation in our experience!
We identified two important factors that the client had not yet addressed.
LEASE GUARANTEE
Most landlords require the tenant to provide some form of surety for their lease obligations. This is typically calculated and negotiated as the equivalent of several months’ rent and held by the landlord in the form of cash or bank guarantee. In this case the bond amount was $40,000.
The business owner was assuming that he would have to deposit $40,000 cash with his bank to secure a $40,000 bank guarantee.
Our advice was to negotiate with the bank to include a $40,000 guarantee facility as part of the bank’s overall lending offer, secured by business and personal assets without the need for a cash security deposit.
LANDLORDS CONSENT
Given the business is to be borrowing money for fit out and other equipment it is highly likely their bank will want the landlord to consent to, in the event of business default on their loans, the bank entering the premises to repossess financed assets.
The matter of ‘landlords consent’ can add to further delays in finalising a lease. Our advice was to address this immediately with the landlord so there are no surprises when finance approval and documentation is forthcoming.
Summary
What we found most pleasing from our discussions at our last Leader’s event was that it only took 15 minutes for us to identify a number of financing issues and solutions each time we met a business owner. We would advise any business owner to have a brief discussion with an experienced Finance Broker every few months to help stay ahead of any potential financing snags.