Laurence Rutter, CEO of VATBRIDGE, looks back on a busy period for the growing VAT lender…
With Christmas soon approaching, I have started the annual task of tracking down a suitably challenging Christmas jigsaw for the family. Every year, over the Christmas holiday we try to complete ‘the Puzzle’, and every year one of my kids tries to surreptitiously steal a piece from the box, so they can have the glory of completing ‘the puzzle’.
It was similar thinking that led to the creation of VATBRIDGE, the ‘missing piece’ of the commercial property funding jigsaw.
The VAT ‘missing piece’ arises when an ‘opted-in’ commercial property is sold. VAT is charged on the sale of the property and at completion the buyer is liable to pay VAT on the purchase price. This leaves many borrowers having trouble in securing the short-term funding required to settle the VAT. Every commercial property buyer must plan for a 45 to 120 day delay between payment and recovery of the VAT.
If you are financing your purchase with debt, it is worth bearing in mind that most commercial mortgage lenders adopt a maximum ‘loan to value’ criteria of 70%-80% leaving the VAT as a potentially unfundable problem.
For all your commercial property VAT funding needs…
Over twelve months ago, we designed the VATBRIDGE product to provide the solution; Short-term secured loans that recognise the inherent security of the VAT recovery from HMRC, rather than being limited by the available equity in the property being acquired.
A VATBRIDGE loan advanced the VAT less interest and charges. For some this was enough, but we soon realised there were many borrowers that needed more help, a loan that advanced the full amount of the VAT due.
In response we developed VATBRIDGE+, a top-up loan used in conjunction with a VATBRIDGE loan to ensure the borrower receives the full amount of VAT due. However, as this loan is not repaid by the VAT recovery, it is only available to borrowers where we can see a viable repayment plan that coincides with the recovery of the VAT.
By the end of the summer, with VATBRIDGE and VATBRIDGE+ products and processes in place, our focus shifted to promoting the business to a wider audience.
We have seen a significant increase in the number of enquiries and with it the development of an interesting new trend – the borrower with the funds available to pay the VAT, but choosing a VATBRIDGE loan.
We have spent time talking to these borrowers to understand their reasons for choosing to borrow, these fall into the following categories:
Maintaining a ‘War Chest’…
Developers with an eye on their next project have cited the need to maintain free cash to take advantage of opportunities arising in the short-term. We lent £120,000 to an expanding developer on the South Coast. With cash in the bank, they didn’t need to borrow but were planning to buy another property at auction before the VAT would be recovered and didn’t want to tie up the funds.
Borrowing is cheaper than the cost of exiting investments…
Borrowers with significant invested assets have cited high costs of exiting investments as the reason for taking a loan. We previously offered a £2.2 million loan to an experienced property developer, where the total cost of the loan was less than 4.5% – they accepted as the cost was lower than they would have faced in liquidating other investments to pay the VAT.
Developers increasing returns by reducing their dependency on profit share partners…
Developers are recognising a short term VATBRIDGE loan can be cheaper than taking short term funds from a profit share partner. We previously lent £800k to an experienced developer, who approached us very close to completion of their latest purchase. The developer had arranged to source the funds for VAT from their profit share partner at a cost of an additional 4% of the development profits – the VAT loan was less than a quarter of this figure.
If you are interested in a VATBRIDGE loan, or becoming a VATBRIDGE introducer, then please do get in touch. We can be contacted at www.vatbridge.com, by email at firstname.lastname@example.org or call us on 0808 169 3150.