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The Purpose of Trail Commission
The Royal Commission released its final report on Monday 4th February 2019, following more than 12 months of court hearings and research into Misconduct in the Banking, Superannuation and Financial Services Industry.
One of the recommendations which came as a surprise to the finance/mortgage broker industry and the wider community was the recommendation to abolish trail commissions as at 1st July 2020.
Commissioner Kenneth Hayne’s commented “the chief value of trail commissions to the recipient, to put it bluntly, is that they are money for nothing. Why should a broker, whose work is complete when the loan is arranged, continue to benefit from the loan for years to come?”
As brokers, we are always keen to educate our clients about finance, and provide an ongoing service (which is free of charge because it is currently paid for by the trail commission we receive).
The ongoing support that First Point Group and most finance brokers across Australia provide to clients (currently paid for by trail commission) includes, but is not limited to:
- Regular interest rate reviews to ensure your home/business loan is still competitive
- Negotiate with lenders on your behalf whenever your needs change or market conditions change
- Product switches (e.g. moving from variable rate to fixed rate)
- Interest Only repayment extensions
- Assess your capacity for future finance, whether you proceed with a loan or not
- Provide ongoing education on lender and interest rate movements
- Speaking to your Lender on your behalf to solve any problems or resolve any issues
You may not know that if you require our assistance to make a variation to your loan which requires no additional funds, that it often involves the same amount of work as applying for a whole new home loan. This is another reason why ongoing trail commission is currently paid to finance brokers.
First Point Group have always been strong supporters of providing the best possible ongoing service to our clients. We would strongly appreciate your support in ensuring that we can continue to provide this service with no additional cost to you by signing the petition in the below link:
https://www.brokerbehindyou.com.au/support-your-broker/
If you have any questions about the above, or of any of the results of the Royal Commission, we would welcome the opportunity to explain them to you. Please Contact Us.
5 Tips for Writing Your Business Plan
Preparing a detailed Business Plan will inform the lender about your business proposal so that they can assess your application as favourably as possible.
- Know your numbers. In order to inspire confidence in you as a borrower, it’s important you are familiar with your key financial figures, even if you don’t prepare your own financial statements. This includes current income, net profit and expenditure.
Include a profit and loss budget, and download a copy of your personal credit file from Equifax. - Estimate how much funding you need. Are you looking for funds to help with cash flow and operations on a regular basis, with a larger overdraft limit for occasional use? Or do you need one-off funds to open a new branch or purchase additional equipment?
Ensure that you establish all of these factors in your application, including outlining any partners and growth strategies. - Project your cash flow. You can use this to prepare pro-forma statements, or projections of what your business will make going forward, making adjustments based on past trends or future assumptions. Make sure the lender clearly understands your assumptions.
- Provide proof of loan security. A lender will evaluate your risk factors to determine if you and your business are a good investment. Consider the maximum payment you can afford before meeting with your finance broker, who can advise you on whether you should offer collateral (assets such as property to secure your loan).
- Ask questions. Your finance broker will shop around on your behalf to find out what products are on offer. If you’re already a customer with one lender, your broker can still act on your behalf to achieve the best result for you.
Small Business Acquisition – Management Buy Out (MBO)
First Point Group was recently able to help a client consider a buy out of a business they currently worked for – effectively a management buy out or MBO as it is commonly known.
Funding an MBO is very exciting as it transitions a senior employee from being an employee to becoming an owner, and takes on a whole new journey for the client.
The purchase transaction presented several positives, but also some negatives which needed to be overcome to obtain any interest from a Lender.
Positives
- Applicant/senior employee was effectively running the business day to day as the current owner was not active in the business day to day
- Applicant’s wife was able to remain employed elsewhere as a PAYG employee, reducing the risk of placing all their income eggs in one basket
- Applicant had $600k cash to contribute towards a $ 1.1m proposed purchase
- Business Financials over the past 2-3 years were consistent
- Cash flow forecasts were going to be available from the supporting Accounting firm
Negatives
- No property was owned by the applicants so their major asset being cash was being used towards purchase
- The loan was effectively unsecured, with the Lender taking a charge over the business (via a General Security Agreement) and Director’s Guarantees as security
- The Lender needed to be able to get their funds/loan back within a 5 year period due to the unsecured nature of the transaction
We were able to build a positive storyline and overcome the negatives with a Lender (not a big bank) obtaining an indicative approval to allow negotiations to commence with the current owner.
If you have any questions about how to finance the purchase of a business please contact Peter, David or Simon.
There are many different types of business finance we can help with
Further information of the Business loans we can assist with can be found on our website.
Are you considering Asset Finance for your business?
Further information of the Motor Vehicle, Leasing & Equipment finance we can assist with can be found on our website.
Business Asset Finance
Do you need a car for business purposes? We would love to help you with your finance!
You can refer to this article for the different types of finance that are available.
Tips when considering asset finance
It is so important when considering different lender options that you compare apples with apples:
- Loan Term – How many years is the loan term? You cannot accurately compare two lender quotes if different terms are quoted
- Amount – How much is being borrowed to purchase your vehicle? Does the finance include any capitalised fees? Are the repayments to be made in advance, or in arrears?
- Balloon or Residual – A balloon (also called a residual) is a lump sum figure to be paid at the end of the loan term. The larger the balloon, the less the monthly repayments, so it’s important to ensure the different lender quotes offer the same balloon figure.
Often, to quote the lowest repayment possible, car dealerships may quote based on a larger balloon, which may result in a situation called negative equity. Negative equity means at the time your loan term is completed and your balloon payment becomes due, the value of the vehicle is lower than the balloon owing. This may mean you would need to contribute additional cash from your own savings to clear the loan balance if you sell or upgrade the car.
First Point Group can save you the work of comparing different offers as we do this for you. Once you are ready to consider buying a car for business purposes, our recommended process is:
- Speak to us to obtain a pre-approval
- We will research the market and provide you with a very competitive quote, ensuring the loan terms meet your needs
- You can then confidently negotiate the purchase of a car with dealers
- Let us know once you have decided on the vehicle and we will organise for the Lender to pay the Dealer directly!
If you would like to speak with us about this or any asset finance for your business, please contact Peter, David or Simon.
Relaxation of Interest Only Lending
As at the 1st January 2019 the Australian Prudential Regulation Authority (APRA) removed its restriction on interest-only lending for new residential mortgages.
This restriction was originally introduced in March 2017 in response to concerns over the large number of interest-only loans and the ever increasing cost of property prices in major cities at that time. The ruling forced Lenders to limit the approval of interest-only loans to no more than 30 per cent of all new residential lending.
The restriction influenced a dramatic reduction in interest-only loans – from almost 40 per cent of all residential lending in 2015 to less than 17 per cent, according to the Reserve Bank’s latest financial stability review.
During 2018, APRA’s additional requirement of capping all new residential investment lending to no more than 10 per cent of new lending was also removed. The slowdown in property prices in Sydney and Melbourne partly explains this.
APRA’s chairman Wayne Byres said restricting interest-only home loans to 30 per cent of banks’ new mortgages, and the 10 per cent annual growth cap on lending to property investors, had “served their purpose of moderating higher-risk lending, and supporting a gradual strengthening of lending standards across the industry over a number of years”.
APRA did note that while it has removed the caps, lenders “still need to ensure they maintain adequate oversight of the level and type of interest-only lending”. This includes the expectation that lenders will maintain internal risk limits on interest-only loans. APRA stated that “these internal limits should cover both the levels of new interest-only lending and the type, including lending on an interest-only basis to owner-occupiers and lending on an interest-only basis at high levels as a proportion of the property value.”
We have recently noticed some business lenders have relaxed their interest-only policy in response to the APRA action, so please contact Peter, David or Simon if you wish to consider an extension of your current interest only loan(s).
Sweetcorn and Zucchini Fritters Recipe
From https://www.lifestylefood.com.au/
For those who have had a successful season of growing fresh vegetables in their vegie patch then this recipe is for you! Zucchini’s are a fast-growing plant that loves the warmth so in Autumn you may often end up with more Zucchini’s than you can possibly eat! For those that don’t grow them at home, they are reasonably priced to buy and in season in Autumn.
Ingredients
Sweet Corn & Zucchini Fritters
- 1 cup self-raising flour
- ½ cup grated cheese
- ½ teaspoon of salt
- 2 eggs
- ½ cup milk
- 2 Zucchinis – grated and water drained from them
- 2 Corncobs
If you wanted some extra flavour you could add garlic, chilli or even some curry powder to the mixture. You could double the mixture to make more and freeze them. This recipe serves 4.
Avocado smash
- 1 Avocado, roughly chopped
- 2 Roma tomatoes diced
- 1 tablespoon of lemon juice
- ¼ teaspoon of salt
- 1 Baby Cos lettuce, broken into leaves (to serve)
- Sour cream & sweet chilli sauce (to serve)
Method
- Sift flour into a large bowl & add cheese & salt. Stir through eggs, milk and zucchini until well combined.
- Use a sharp knife to cut kernels from corncobs. Stir corn kernels into fritter batter until just combined (do not over-mix as this will make fritters tough).
- In a medium bowl, add avocado, tomato, lemon juice and salt and roughly mash with a fork, set aside.
- Heat a drizzle of oil in a large fry-pan (preferably non-stick) on medium heat. Using a dessert spoon, dollop a heaped spoonful of fritter mixture into pan and fry, in batches, for 2-3 minutes each side until golden and cooked through. If fritters brown too quickly but are still raw in middle, reduce heat. Set aside on paper towels. Repeat with remaining fritters, adding extra oil as required.
- To Serve, divide fritters & cos lettuce between plates, top with avocado smash and sour cream & sweet chilli sauce. Enjoy!
