HOBSONVILLE
TOP TIP(s)
Consult with us if you are borrowing to buy an investment property and want to avoid costly tax mistakes - Your stated intentions at the time of purchasing a property may have an impact on whether a future sale is taxed!
Consult with us if you are applying for finance: It is the purpose of the lending that will determine your ability to claim interest. With a property purchase, what property it is secured over is not relevant to the deductibility of interest. So if you buy a house to live in but secure it over an investment property, interest is NOT deductible!​​​​​
Question 1: Why do you need a loan? Possible reasons are for stock to grow your business or new equipment for increased productivity. ​Question 2: Can you afford to repay the loan and the interest? Calculate the Return on Investment to show you can repay the debt and about 3 times cover on the interest. ​Question 3: What do your business vital signs show? Understand your KPIs and industry bench marks. (Don’t wait for the financier to tell you your stock or debtors are too high.) For example - Net Tangible Assets – a good positive balance shows financial strength. Debt to Equity – a measure of external risk (do creditors exceed ownership?) Quick ratio – is there a good supply of realisable cash to cover current liabilities? Gross Margin – needs to be enough to cover overheads, profit and tax. Sales turn - you need good speed of cashflow to cover direct costs, debts as they fall due etc without relying on overdraft. Question 4: Do you have accurate financial records? Go to your bank prepared with full reports and have knowledge of the financial position of your business - Current Balance Sheet with prior year comparatives; Current Profit & Loss, Year to Date and prior period comparatives; Forecast: what do your balance sheet, profit & loss and cash flow look like before and after the funding? Full picture of personal and company income and earnings.