Sales - SME Toolkit Trinidad & Tobago

Small and Micro Enterprises

For every need of a small business owner, there is also the need for financing

Small and micro enterprises (SMEs) have various needs; there’s the popular coffee shop that’s growing in clientele, tea and soap manufacturers who need to expand their business quickly and are thinking about purchasing equipment to mechanize their operation, and the artisan baker who wants to have their own bakery instead of delivering their products.

For every need of a small business owner, there is also the need for financing. The key is finding the right form of financing for the business. SMEs can consider a commercial mortgage to cater to their various needs.

WHAT IS A COMMERCIAL MORTGAGE?
A commercial mortgage is usually a long-term loan secured by property that generates an income for the business. This can include factories, warehouses, store fronts and shopping centres. A commercial mortgage can also be used to build a property, renovate a building or purchase equipment for the business.

There are two popular types of commercial mortgages currently trending in Trinidad and Tobago:

- An owner-occupied mortgage occurs where the property is used for both a business and residential purpose. For example, a bakery or bar located on the ground floor of a two storey building, where the owner lives upstairs. In these cases, special consideration should be given to the type of property insurance held and the appropriate approvals were received from local authorities and Town and Country planning.

- Then there’s the commercial investment mortgage that allows the owner to rent the building to third parties to generate revenue.

THINKING ABOUT EXPANDING

1. Purchasing property is a popular way to expand your business. As you consider the various property options available, you should consider what your company needs and whether the space can fulfil it.
2. Does your business require foot traffic? Is the property in a high traffic area? Is it accessible to your employees or is it too far for them? If the new building is too inconvenient for your existing staff, you may need to re-hire when you move. Is it in a location with convenient public transportation?
3. What about space? Is it big enough for your customers to sit? Do you even need to buy the property at all or should you rent it?
4. A good indicator of expanding your business is your customer’s feedback. Are your customers demanding this growth? Do they want more space in your shop? Are they asking about new products? Are your current products selling out and your customers are asking for more? Their demand will help you think about what type of property you need to supply their demands.

While growth in a business is important, it should be measured and calculated. If a business expands without a solid plan or expands too rapidly, it may not be beneficial to the business and cause it to incur a loss. This occurs when expanding attracts more customers than a business can handle which causes the quality of the product or service to decrease.

Expanding using a commercial mortgage is an exciting option for entrepreneurs. Once careful thought and planning is done, it can lead to incredible opportunities for the business.

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Leasing

A lease gives the SME the flexibility to perform without needing collateral.

Assess Risk Levels

A business that expands without a solid plan may cause it to incur a loss.

Supplement Your Finances

Access business loans for up to 90% of the value of property.

SME Business Growth Opportunities

BUSINESS FINANCING
Many entrepreneurs already own property and have no desire to purchase another to grow their business. Instead, some choose to invest in equipment and/or technology that will increase output/ sales and improve efficiency. If this is something that might work for you, Republic Bank offers business loans that can be secured by the property you already own!

Additionally, to supplement your daily operations, business expansions or managing uncertain events, Republic Bank can provide a small commercial business with overdrafts, credit cards or other short-term financing options. In some instances, up to 90% of the cost can be financed. The financing options for small commercial businesses are numerous. We can help you with the purchase of machinery, equipment, acquisition of office facilities, working capital needs, purchase of property (land or land and building) for business occupation/use and construction or renovation of the building used in the business. All of which can be tailored specifically to suit your business needs.

Property Ownership

BENEFITS OF OWNING YOUR OWN PROPERTY INCLUDE:

The property is an asset of the business and allows for the company to use the property as security for future borrowings.
Buying your own property is an investment, and you can leverage that asset in different ways, one of which is using that space to generate income by renting.
Owning your own property allows you the freedom to make design choices such as adding an additional bathroom or a lounge for customers without having to seek permission from a landlord.
Commercial real estate can appreciate in value. Over the years your property could increase in value especially if you made upgrades. When you are ready to sell, you could walk away with more than you spent on the building.

Cons of buying your own property are:

- You may not want a commitment of being tied to the same space. When assessing business and customer traffic, your numbers may show that the location is not ideal.
- The added cost of maintenance and repairs will be paid for by the business.
- Owning a property will also mean paying property taxes and insurance premiums annually.

LEASING OPTIONS

Leasing is an option for medium and long term financing. It is a contractual arrangement for use of an asset such as land, building or equipment. In this arrangement the owner of an asset (lessor) gives the right of use to a user (lessee) in lieu of agreed payments arrangements. These payments, known as lease rental, may even be due annually. Leases may span 10, 20, 50, 99 or even 999 years. All conditions of the lease are defined in what is called a lease agreement. This agreement often stipulates the conditions or terms of use of the asset. Ownership of the asset still resides with the lessor and at the end of the contractual agreement, the lessee has the option to purchase the asset or renew the lease agreement.

The decision to lease versus rent typically boils down to your business needs and whether the asset is required long-term or for shorter periods of time. If the asset is required all the time, leasing may be the better option. For short-term periods where the asset is not required year round, rental may be a best.

CONSIDER GETTING A COMMERCIAL MORTGAGE

Expanding your business is an exciting, but difficult decision to make. The demand from your customers will determine if expanding your business is ideal. If you are a coffee shop with more people crammed in your parlour, it might be a good indicator that you need more space. If you are a beauty product manufacturer that just made a deal with a large-scale distributor you may need factory or a warehouse space. An artisan baker experiencing an increase in sales may want to invest in outfitting their kitchen with a larger commercial oven and state-of-the-art baking equipment.

The directors of these SMEs have the option of using a commercial mortgage to buy new property or invest in the equipment.

REPUBLIC BANK'S COMMERCIAL MORTGAGE

At Republic Bank, a commercial mortgage can be granted for up to 90% of the cost/value of the property, and for a maximum of 20 years. Unlike residential mortgages, a commercial mortgage does not have a specific interest rate, but the rate is negotiated based on the amount of your down payment, value of the property and use of the property. In cases where you are constructing a building, there is a moratorium on principal repayments up to one year where you are only required to pay the monthly interest generated on the loan.

When your building is complete, the monthly mortgage payment (principal and interest) is calculated on an amortised basis over the agreed term of the mortgage, e.g., 20 years. Provisions for periodic, defined lumpsums on the mortgage is also permissible on our mortgages. Acceptable insurance is required for commercial mortgages where there is a building on the property.

Commercial Mortgage Application Process

If you are ready to apply for a commercial mortgage, the following financial information will be required to begin the application process:

1. A business plan, forecasts of cash flow, forecasts of cash flow, annual accounts and periodic management accounts are considered necessary.
2. Depending on the size of your business, you will need audited financial statements prepared by an accountant for the last three years.
3. For financing, the business would need a certificate of registration or certificate of incorporation and a certificate of continuance for companies registered before 1995
4. One valid form of identification and proof of address for each director and account signatories; notice of registered address for the company; notice of company secretary and major shareholders.
5. All bank and other financial institution’s statements which includes savings and investments, loan balances with applicable installments.

Making the decision to apply for a commercial mortgage isn’t an easy one, but it also doesn’t have to be complicated either. Our experienced Account Managers are available in each branch to walk you through the process and help you to make the application as simple as possible.