SA’S COMMERCIAL PROPERTY SECTOR LACKS ACCESS FACILITIES

By on January 22, 2014

January 2014: In today’s fast-paced and economically-taxing business environment, access to available funds (for securing transactions as they arise, or reinvesting capital into a business at short notice) is becoming increasingly necessary to have.

However, according to Gary Palmer, the CEO of Paragon Lending Solutions, most South African businesses do not always have the accessibility to these funds at short notice from the traditional lenders. This can significantly hinder invaluable business growth.

Palmer says that businesses and property investors who take out commercial property loans from banks are often restricted when it comes to accessing funds. They are not able to access the loan for funds as one can do with a residential property loan. He says this has always been a problem for businesses and property owners in South Africa.

“Residential property loans have historically been designed as an access facility for clients, which means that as clients pay down the loan they are then able to draw back up on the loan to the original facility amount when the need arises. Banks don’t however allow the same flexibility with commercial property loans, as it carries a different risk profile.”

Palmer explains that property owners usually pay commercial property off over 10 years, as opposed to residential property, which is traditionally paid off over 20 years. “For commercial property loans banks often want the term of the loan to mirror the length of the lease.”

He notes there is therefore a need for access facilities on commercial property amongst businesses. “With this type of facility available property owners will have access to funds at all times and can move quickly on business transactions which often have very short lead times.

“A big advantage for business owners who have access to this type of facility is that one can essentially treat commercial property loans as an access facility.”

Furthermore, Palmer says that besides the flexibility to move quickly with transactions, access facilities also allow property owners to invest additional cash surpluses into the loan. The property owner saves on the higher interest with the ability to get access to the capital when the need arises.

“In today’s quick moving business environment it is increasingly necessary to have this type of access to funds available, and business owners can stand to benefit greatly from the various advantages.”

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