Commercial Finance: Recommendations, Risk Assessment And Management (Essay Sample)

Commercial Finance ASSIGNMENT 1 Borrower’s Details Name: Mr. and Mrs Bisset Marital status: Married with three adult children Address: 12 Currumbin close, Carindale QLD 4152 Accountant: Ainslie and partners telephone 0733499999 Background Bisset’s real estate Pty ltd was formed at the start of the previous financial year. This was formed to take up the real estate agency business that was under the control of Mr. Bisset and Joseph Hooper’s partnership. This came into action after the retirement of Joseph Hooper. Andrew Bisset has 22years experience in real estate as an agent. He has a specialty in commercial and industrial property. On the other hand, Jane has been in the managerial role for property in Bisset’s real estate Pty Ltd. Loan Purpose The loan use is to acquire the 3,000m2 of land near the shopping centre. Facility Details The already existing shopping centre comprising of six shops, located at 55 Park Road Belmont QLD 4171, Lot 43 on RP 9542, zoned for commercial purpose and occupying an area of 1850m2. The proposed facility to be purchased, vacant land located at 423 Belmont Road, Belmont QLD 4171, Lot 84 on RP 9564, zoned for special purpose and occupying an area of 3,000m2. Funds Position Assets: $ House at 12 currumbin close carindale QLD 560,000 Share portifolio 345,000 Motor vehicle 60,000 Furniture 85,000 Cash at bank 45,000 1,095,000 Liabilities: ABZ bank Loan 190,000 ABZ bank credit card 10,000 200,000 Capital (Assets-Liabilities)= $895,000 Servicing Capacity The Bisset Family Trust income Gross rental income 138,000 Loan interest 52,000 Management fee 11,000 Net profit 50,000 Depreciation 25,000 Income=net profit-interest (30%)+interest+ depreciation =50,000-15,000+52,000+25,000 =112,000 dollars Bisset’s Real Estate Net profit= 72,000 Less: tax (30%) 25920 Total= 46,080 Add: Depreciation 14,000 Director’s superannuation= 11,000 Income=71,080 dollars Total income=71,080+112,000 =183,080 dollars Outgoings 40,000 @ 11% 1/0 =4400 625,000 @ 9% -15 years P/I =76070 625,000 @ 9% 1/0 =56,250 Total=136,720 dollars Net income=183,080-136,720 =46,360 dollars DSCR=1.33 Personal income and expenses Income Andrew 78,000 Jane 43,000 Total 121,000 Less: Tax 24,600 Net income 96,400 Expenses Home loan repayment 15,480 Credit card 7,200 Total 22,680 Surplus 96,400-22,680 =73,720 dollars Andrew has a relatively high servicing capacity. Andrew’s DSCR is 1.3. This implies that the family trust and the real estate generates 30% more than what is required to pay off debts. Andrew has thereby the capacity to service the loan. Apart from the income from the family trust and the real estate, Andrew and Jane have their personal income that they can also contribute to servicing the loan. Security Security for this loan comprises of the shopping center which is valued at 1,450,000 dollars, guarantees from the Bisset’s Real Estate Ltd, the land to be bought, and the Bisset’s jobs. The Bisset’s may offer their pay as security for the loan. The total security in this case is 2,050,000 dollars. Risk Assessment and Management The risk involved is land rezoning. The land that Andrew is aiming to buy is zoned as special purpose. However, the local council has earmarked it for future commercial use. This poses a risk particularly with it being used as security since rezoning it might render it useless as security. However, there are a number of ways in which this risk can be managed. One of them is Andrew and Jane can sell their shops and restructure the loan without involving land as security. Another way that risk can be managed is Andrew and Jane may engage in long term leasing of the shopping center in order to raise funds to offset the loan. Recommendations I would recommend Andrew for the loan based on a number of factors. These are factors are: Andrew’s extensive experience as a primary applicant in the local area; the high level of security offered for the loan fits within the lenders policy requirements; positive share portfolio that the Bissets have; lastly, strong statement of position with share portfolio. Attachments -Tenancy agreements -Rental statements -Insurance documents -Information about share holdings -Statements of shopping center loan ASSIGNMENT 2 PART A: The Client Questions 1 What is your name, marital status, and place of residence? 2 May I know the types of businesses you have? 3 How did you start these businesses? 4 What was your source of starting capital? 5 How do you manage your businesses in terms of book keeping? 6 How much do you generate from these businesses monthly/annually? 7 How much do you intend to borrow? 8 What is the purpose of the loan you want to borrow? 9 What would you provide as security for that loan you’re planning to borrow? 10 How long do you want to repay back that loan? Have you ever borrowed the loan from any other institutions? What are the challenges/ problems you face while running these businesses and how do you deal with them? How safe are your businesses in this area, and level of competitions that you face? Parties to the Loan 1 The lender 2 Borrowers (Ray Henley and Steve Manning) The security The company assets and borrowers’ personal incomes Facility Details -A joint owned transport which serves a variety of sectors -The needed purchases are Trucks, Dog Trailers and a refrigerated Pantec truck to supply flowers to Coles Supermarkets. Lender details (options and recommendations) The lender that can be used in this case the Wells Fargo Equipment Finance Inc. Wells Fargo provides equipment financing as well as leasing solutions for companies. It offers loans to businesses for purchasing used or new equipment and equipment leases. The company also provides vendor services to businesses for financing with floating and fixed rate options. The involvement of Wells Fargo in equipment leasing and financing makes it the best option for Henley and Manning. Confirmation of the client’s complex requirement Ray and Steve need to expand their business as well as accommodate new contracts that they have entered into with their clients. Ray and Steve thereby need an Equipment Limit of 500,000 dollars to be established in order to allow them to purchase Trucks, Dog Trailers, and a refrigerated Pantec truck. After being advised by their accountant, the two individuals decided to establish a Trust through which to purchase the needed equipment. The equipment will then hired by the transport section of the company through the Trust and the charges used to finance the payments. The personnel that maybe involved -The lender -The borrower -The guarantor -Financial adviser The client’s responsibilities so the client fully understands the loan -Always keeping in touch with the lender. -Continue paying while waiting for the bearance approval -The client should observe repayment dates -The client should understand fully and confirm the amount of the loan advanced to him/her -The client should understand the loan duration/loan term over which the loan shall be paid. -The client should be aware of the monthly installments to pay. -Should be provided with the offer letter to read, understand and sign to show acceptance. -The client should also ask questions concerning the basis on which the interest is charged e.g whether it’s on the reducing balance basis. An outline as to the process timing and what the client needs to arrange -The client should arrange the day and time to meet with the lender -The client needs to prepare and make available all original and copies of documents requested by the lender. -The client needs to provide the clear direction for the location of business and place of residence by the address, street or road where necessary. -The client needs to produce copies of identification documents and tax compliance reports of guarantors. - The client needs to liaise with the property valuing agency to have their property valued and be provided with the printed report to show the lender The documentation needed to commence the borrowing -Bank statement: the previous and current bank statement for at least six months should be presented to the lender to check on cash-flows. -Asset lists: the lender will request for the valuation report for each asset owned by the client to to know the client’s assets and capital base. -Profit and loss statements: the lender will need to check profit and loss accounts for the previous financial years to determine the stability of the client’s business. -A fully or dully sealed or signed loan application form -Application forms should be attached with required copies such as identification documents of client and those of guarantors. -The documents should pass through relevant authorities i.e the lawyer/advocate for commissioning. -Offer letter; should be provided by the lender for the client to read and understand the terms of the loan contract before signing. The name in which the client will sign the contract to purchase The name should be register...