There are some things that you just find out the hard way – trying to get finance for anything once you own your business will be one of them.
Six months of – not knowing where I am going to be living from one day to the next; 28 houses and farms viewed over a 100km area, 1st attempt at selling own house falling through after 4 months, 2nd attempt at selling own house successful; 2 offers turned down on dream farms, 1 offer on another farm accepted but bond declined; another offer accepted on farm-like house in Joburg accepted, submit 37 documents plus a more than 50% deposit, bond granted; pay over R100 000 in transfer fees, wait months more for final transfers to take place so I can move; 15 boxes packed so long, many more to go.
It’s enough to drive the most stable person completely insane…. and I did this knowing about the banking securitization scam globally. A means to an end my friend, a means to an end.
So, to save you endless trouble down the line, there a few things you need to take care of when you are a small business owner. Please note that I am not a financial advisor, this is based on my personal experience in the past 6 months. Please get advice from your tax / banking consultant on your unique situation.
1. Understand that you are being scammed with interest money that is invented out of thin air, and that your loan will be sold to an outside party without your knowledge or consent, being paid in full in the process; but you will have to still pay back the bank, plus interest.
2. If you are planning on starting your own business, rather buy the house or car you want as a salaried person because you will not just be given finance after you walk out the door. That will save you many headaches later. It will take years before you will be entertained by a bank. The banks do not lend you money when you need it, the only lend you money when you don’t need it.
3. If you’re planning on being more than a one man band, have separate accounts for your business and personal banking. It is going to come back to bite you big time if you don’t do this – on many levels.
4. Make sure your company financials are well taken care of – this means monthly management accounts, annual audited financial statements, tax certificates, business registration papers, company profiles, sales projections, solvency letters, payslips, bank statements, etc etc. The banks are going to ask for all of that; they will ask for the last 3 years audited financials. And if even one sentence raises a warning, you are going to get declined.
5. Make sure your business is showing a profit, because if it’s not, no loan. Of course, many SME’s show a loss on purpose to avoid excessive taxes, better think about that strategy carefully if you want to buy expensive assets.
6. Pay yourself a salary, but don’t just transfer the money, you get penalised for that too. Add yourself as a beneficiary and make the description your salary from your business name. The banks are going to want 6 months of statements on your personal and business accounts, they are also going to ask for salary slips. All these must tie up to the cent. Make sure you pay yourself enough or you will be declined again. Go to the bond calculators and work backwards from how much you need.
7. Think like an investor. And like a drone who is not allowed to think out the box. The people on the other end of your home loan don’t care who you are and have never heard of you. They have been given a checklist to follow and they are not allowed to deviate from it. Make sure you have sold yourself properly to them. If some random person tried to borrow R1million from you, would you give it to them if they received the documents you were about to submit to the bank? Your business might be great in your eyes – but investors don’t look at it from the same eyes.
8. Get help. My first home loan attempt I did myself; they swatted me down faster than I could whistle Dixie. The second time I was sent to a bond originator who spent 15 years working in a home loans department. She made all the difference in the world and did all the legwork. Thank you Pat Bond, you truly are 007!
9. Try avoid banks altogether and buy cash. If you’re planning to fund this from your business, plan 2 years in advance because depending on the nature of your business it will take that long to sell, at minimum. Also selling your own home can take longer than expected. Make sure you have enough money over and above whatever you are buying for transfer fees. That gigantic rip off can clock over R100 000 in seconds.
10. Decide carefully about whether you are buying these assets in your business’ name or your personal name. If you sell your business one day, what happens to those assets? If you are buying more than one property, you are going to have Capital Gains Tax to contend with. You need to think way in advance to get this right.
11. If you’re buying agricultural land over 3ha, all this just got even more complicated. Some banks might look at 5ha; but bigger than that and it’s a flat out no. You have to buy cash.
12. Ask yourself if it’s really worth it, maybe renting is just fine hey. Everything you own will one day belong to someone else anyway.
13. If you do get a loan approved – please look after your primary asset! Keep it maintained and in good repair because you will want to sell it again one day. Don’t expect a premium price if you’ve let it go to the dogs…
14. Keep the alcohol handy, because you will be driven to it in this process! :-)