PERSONAL LOGIC IN BUSINESS FINANCE
I have greatly benefitted in my role from realising from an early stage that business finance products in general aren’t that far removed from those that I am used to using in my personal finances.
Ok sure, they are of course more complex with many more moving parts, and you could analyse my credit history, earnings and future financial trajectory a lot easier than you can a company. But the principles are the same in many instances.
FINANCE PRODUCT SIMILARITIES
• Owner-Occupier mortgages – The affordability calculations for a business are company accounts based, but the theory is the same as our own residential properties that we live in.
• Buy To Let / Commercial Investment mortgages – The only difference here is normally the complexity of the ownership (limited company or portfolio landlord), or the type of property involved. We often use what are referred to as ‘specialist mortgages’.
• Bridging and Development Finance – Regulated bridging loans and self-build finance are relatively commonplace in the personal finance space.
• Asset Finance – It’s far more common for us to personally use Leasing or Hire Purchase to get our cars, and the mechanics of these products are the same as commercial products. And in commercial of course, Asset Finance applies to a lot more than just cars.
• Business Loans and Overdrafts – Unsecured loan, secured loan, arranged overdraft facility? I could literally be talking about either personal or commercial finance.
• Invoice and Trade Finance – I definitely don’t run a ‘debtors book’ in my personal finances! But I am certainly used to the concept of being given an invoice by a business for a service that they have provided – such as boiler service or car repairs – and this having payment terms of say 14 or 30 days on it.
I am even guilty of having forgotten to pay on time – therefore having inadvertently pushed myself into the ‘aged debtors’ column of that company’s credit control!
WHERE WE SEE PERSONAL FINANCE LOGIC IN COMMERCIAL
There are elements of personal finance logic that I see with clients when they are considering their commercial finance requirements. One of the most common is some deciding to purchase their commercial premises rather than pay rent to a landlord.
This is almost a ‘right of passage’ for us all as we go through our twenties and thirties in our personal finances – most of us will turn to saving for the deposit required so that we can get a space that we can call our own and likely pay less in mortgage than we do in rent to someone else – to pay their mortgage!
This is a topic regularly discussed in our house as our son nears the end of university and we talk about the next 5 to 10 years from here, and his property aspirations.
THE ‘COST OF LIVING CRISIS’ IS ABOUT BUSINESSES TOO
The ‘cost of living crisis’ has been on every front page and news bulletin for months now – but this again applies to businesses as much as it does in our personal finances.
How have I approached price inflation in our personal finances?
I fixed our mortgage rate in October for 5 years, and when our electricity deal expired the same month I took what turned out to be one of the last fixed deals available – though at 65% increase from our previous payments that was as harsh as it has been for everyone.
We have oil heating instead of gas – no fixing those payments, like with petrol, and the cost per litre has trebled since mid-2020.
So in short I have done what I have been able to – attempting to fix our costs where we have any ability to – and everything else we will have to adjust our spending to reflect the limitations of our budget and future price rises.
Does that sound any different to how you could approach price inflation as a business owner or director?
The price of raw materials and goods, freight and transport to receive these, energy and fuel, wage inflation due to staff shortages in some sectors – the list goes on of areas that are beyond your control and that is certainly not exhaustive for many people!
But take for example the commercial mortgage that your business may have; coming out of what has been an extremely low interest rate environment for an extended period of time it is likely that many companies have variable rate deals in place.
I cannot tell you for certain that interest rates will continue to rise – but if your view is that price inflation has a way to go, and rates could continue to rise, why not consider fixing the cost of the one major business overhead that you have any control over?
The ship has not sailed on fixed rate commercial mortgages in this new interest rate cycle – and if you would think about fixing your personal mortgage to help manage your costs, why not apply that logic to your business’s finances?
The best outcome for our clients is at the centre of what we do every day – no cheesy website or marketing line, it’s our ethos.
And if we use personal finance logic to relate to commercial finance ourselves, it certainly would seem a practical way to help you and your business?
Mark Grant, April 2022.