Market chatter suggests that when the Reserve Bank of Australia “RBA” meets on Tuesday 7 February, the cash rate will be reduced by another 0.25 points to 4.00%.

Now we hear that the banks are suggesting that, due to the increase in the cost of THEIR funds, they may not reduce interest rates in delayed unison with the RBA.

Instead, we hear that they are looking to set their interest rates independently of the RBA! 

This makes current fixed interest rates look very attractive right now.

From a personal and business point of view fixed interest rates are generally below the current variable interest rates, so it may be worthwhile considering a fixed interest rate at the moment.

We are also finding that many small business owners who have been with their bank for some time have experienced an upward creep in their interest rate margin. This means that a fresh look at your current loan facilities could save you thousands a year.

A simple phone call to Finance For Life, on 1300 88 95 11, will give us a general idea of your financial circumstances so that we can suggest what is possible to improve your current financial position.

*It is the cost of raising funds through Bank Bills and One Year Swap interest rates that have increased the cost of raising funds, as banks no longer rely on investors.

They also raise funds from the stock market in the form of tranches of money – that is investor funds through insurance companies with superannuation funds. This allows them to add a margin to the cost of those funds raised and on lend to the public. 

The general perspective is that there will be a global recovery as many countries are set to grow. This has raised the investment return and therefore raised the cost of funds to the banks, and in turn increased the cost of funds to the public. This is why the banks are not necessarily following the RBA.

A common fallacy is that people think the RBA set interest rates for the banks. They do not! 

•    Are your current loan facilities at a competitive interest rate?
•    Is your business structured correctly?
•    Are your loan facilities structured correctly?
•    Do you minimize your tax effectively with your current business structure?
•    Have you created a succession plan for your business?
•    Do you know if you will have enough in your superannuation to retire on?

These questions seem insignificant enough for small business owners and, in many cases, are not addressed at all during the time they are in business. In fact, these points should be considered as part of short term and long term goals, financial planning should be taking place as an ongoing process.
Many of us wait until we can see the finishing post and think oh yes what about all that financial stuff? Well if you wait until then, you missed the boat big time.
Yes, it is now that a plan needs to be crafted to suite you, as un-motivating as it might seem.
But what if you had an associate that would make it easy – a financial associate? Someone to whom you can just give them all that financial stuff, they ask a few questions and then make it all better just to suit you? Would that help?
Finance For Life’s slogan is, your smart financial partner. And they do mean for LIFE! That is through business and retirement, “thick & thin”
Throw us your challenge and test us out. You’ll find your money might just turn about.

In real terms it takes just a little organising with your accountant for the SMSF, and the rest you can leave up to us. After that, all you have to do is find the commercial or residential property!

How does SMSF work?

Your SMSF borrows the funds to acquire an investment property and a separate trust (Bare Trust) is established to hold legal ownership of the property on behalf of your SMSF until the loan is completely paid.

You will need to open a SMSF Bank Account with your bank and then you can deposit part or all of your old super funds into the account you have opened. Your accountant may assist you in this process with the rollover funds transfer. The funds in your SMSF Bank Account will become part of the deposit for the investment property purchase. These funds in the SMSF will also cover legal costs and stamp duty.

The SMSF borrows the remaining funds to purchase the residential or commercial investment property through the bare trust.  The commercial property can also be an existing property that is already owned by the members of the fund or related entity.

The maximum loan amount you can borrow to purchase a residential property is 80% of the value of the property, while commercial properties allow up to 70% of the value of the property.

The SMSF then manages the property in the same way as you would any other real estate investment.

The loan is a limited recourse loan and only the property is used as security. In the event of a loan default, the lender only has recourse to the property in question. They cannot claim on any other assets of the SMSF.

The property is leased from the SMSF on commercial terms. Rental payments and other income (other superannuation contributions) enable the SMSF to meet the loan repayments and expenses associated with the property.  This can be your own business as long as it is all done at arms length basis.

When the loan is repaid, legal ownership of the property can be transferred from the trust to your SMSF with no additional stamp duty or Capital Gains Tax!

How it is structured?

The below diagram illustrates how this can be structured.  As long as the transaction is on commercial arms length terms this can be a great way to boost your superannuation investments and provide a good rental solution for your business.

How does it work in practice?

Sue and Bill both aged in their 40’s run a strip shop newsagency’, their premise has come up for sale and they want to look at the possibility of purchasing the property and becoming their own landlord.

Commercial Property is selling for $500,000
Deposit Required 30% $150,000
Balance in SMSF for Sue and Bill $180,000
Surplus in SMSF $30,000

Note: The surplus will more than cover the settlement, setup and borrowing costs.

Your SMSF will then borrow to complete the purchase $350,000
At 8.00% this will cost in interest per annum to the SMSF $28,000

Sue and Bill’s Newsagency will continue to pay rent to the SMSF $30,000

Sue & Bill can between them also contribute a maximum of $50,000 into their SMSF. This will allow a faster repayment of the loan and the ability to start to buy more property or other investments such as shares and gold to diversify their portfolio within superannuation to provide for their retirement.

The longer term benefits once the business is sold are that the superfund can then enjoy the rental return which can help pay a pension entitlement for you into retirement while you also enjoy any capital growth on the investment property overtime.

We can assist in mapping out this strategy and whether this is suitable for you – please contact our office.

The information provided on this article is of a general nature only. It has been prepared without taking into account your objectives, financial situation or needs.  Before acting on this information you should consider its appropriateness having regard to your own objectives, financial situation and needs.
Martin Rambow martinr@financeforlife.com.au  is Director of Finance For Life (ph: 1300 88 95 11) a fee for service advice firm who are authorised to provide financial with authorised financial planners through PATRON Financial Advice AFSL 307379 under the Corporations Act 2001.

Yes, I know – I can hear you from here: “You can’t be serious! I have never worked so hard in all my life. The toughest boss I have ever had is me! No clock? How is it I always get out of bed before the sun? No target? If I do not achieve my own self-imposed targets we are below the bread line!”
Have you ever wondered if you are doing it right, you know, the business thing?  Is there a better way to do it? Do I need help, and just how much will that help cost? It all seems too hard and, hey, it’ll all be OK, (I think?).
Many of you will probably feel to get it right might not work for you – you are different. The truth of the matter is that many small business owners are in the same boat as you – that’s right, you’re not alone. The ones who make it all look too easy are the same ones who get the help. That is their secret, and that is why it looks easy for them.
During our short time Finance For Life have been associated with the Australian Newsagency Federation (ANF), we see many people that do not really have relationships with their bank or, for that matter, with their accountant. We see loans where people are paying far too much in interest on their loans with their current banks and their financial accounts/tax returns from accountants do not suggest the newsagent can borrow any more money. Things can look grim!
There is a way, but you have to play by the rules to get back on track and show your real worth.

• Do you know the tax threshold for the different income brackets?
• Do you know how much you can put into superannuation tax free for your age?
• Have you asked yourself how much money will I need to retire on?
• Do I have my loans structured correctly?

These are all questions many of us carry on in business and never ask ourselves. We at Finance For Life are willing to help you find the answers in a simple process.
We will look at your financial accounts and tax returns and advise you on what changes need to be implemented to bring you back on course. It might seem a simple thing but may have a great result.
Finance For Life will look at all your loans (business loans, home loans, credit cards, creditors, tax debts, and more) and help sort out the confusion.  We will assist you with the structure of all these outstanding monies and get it right for you for now.
Finance For Life has saved small businesses thousands of dollars per annum by just getting the simple things right. Just think of us as ‘your smart financial partner’, someone you can talk to for all your financial needs.

It is also important to consider the end game

Have you considered which station you are getting off the work train at? For some people, the train will simply stop and it will be the end of the line. This will not be the station you intended to get off at.
We are talking here, of course, about succession, the transition from work life to retirement life. In many cases we have heard that the retirement plan for some people is the sale of their business. This assumes that things will continue swimmingly and that the value of the business as it stands today will stay the same. There are many market forces that will influence the final value of your business at the time you decide to sell, and this may not give you the price you imagine.
The time that you spend in your business gives you the cash flow to set aside funds for retirement, to protect yourself against the unforeseen future.
At Finance For Life we again can simplify the process towards moving into the retirement period and helping you get off the work train at the station that you would love to live for many years to come.
We urge you to be in the process of planning for your own future now. It does not matter how many years remain in your current plan. The sooner you start the process of planning and structuring your current commitments/liabilities, the better the end game will be.

Variable 6.72% p.a.

1 Year Fixed 6.09% p.a.

3 Year Fixed 6.19% p.a.

5 Year Fixed 6.69% p.a.

Commercial Security Interest Rates

Variable 7.58% p.a.

1 Year Fixed 6.56% p.a.

3 Year Fixed 6.68% p.a.

5 Year Fixed 7.08% p.a.

As you can see, the fixed interest rates are less than the variable interest rates. This suggests the variable interest rates will fall. The point is what are you paying today with your current lender?

For a free telephone loan health check call FFL today 1800 88 95 11