Why businesses afraid of commercial mortgages with state support
And what's really scary about it
Commercial mortgage with state support is an almost unknown product for Tatarstan small businesses. Entrepreneurs are still not sufficiently aware of various support measures from the state and therefore miss many opportunities, says Vyacheslav Pimurzin, the managing partner of the Affordable Office Fund (Dostupniy Ofisnyy Fond). In the author's column for Realnoe Vremya, the expert discusses about the opportunities offered by the business mortgage with state support, and why it is sometimes more profitable to buy commercial premises under this programme than for cash.
Three reasons for product unpopularity
Sooner or later, representatives of small and medium-sized businesses face the problem of buying or renting commercial real estate — office, warehouse, retail space. Some solve this issue by renting. Others buy the premises for cash. They do not consider commercial mortgages with state support from the very beginning, and there are three main reasons for this.
Firstly, entrepreneurs are repelled by potential red tape, bureaucracy, and a long application review process.
Secondly, a representative of small and medium-sized businesses is, in principle, wary of the phrase “with state support”: as a rule, such assistance programmes subsequently involve tedious reporting and the fulfillment of many requirements.
Thirdly, businessmen simply do not know that there are programmes under which the state subsidises part of the interest rate on commercial mortgages. In the practice of our work, this happens all the time. Awareness of government support for businesses still leaves much to be desired.
Businessmen simply do not know that there are programmes under which the state subsidises part of the interest rate on commercial mortgages
Business mortgage with state support is not scary at all
In fact, the essence of state support in commercial mortgages is that the state subsidises part of the rate on it. So, if the average rate on a commercial mortgage today reaches 16%, then with the participation of state support, the rate starts from 8,5% for the entire loan term.
If you convert these conditions into rubles, then a business can save up to a million rubles on state support (depending on the mortgage term) (if it buys an average office of about 30 square metres in a mortgage). Moreover, in this product there is no requirement for subsequent strict reporting on its activities and on the disbursement of funds spent — when taking out such a mortgage, the state interacts directly with the bank, and its role is only to subsidise the interest rate.
In Tatarstan, a number of other republican structures can come to the aid of businesses, which will take on the role of a guarantor for a mortgage loan. This offer is used by a few entrepreneurs on their own initiative — and also due to low awareness. Businessmen are afraid that they will have to work separately with a guarantor. But this does not need to be done: the maximum that is required of an entrepreneur is to bring certain documents according to the list, further work is carried out by the guarantor and the bank in which the commercial mortgage is issued with state support.
Moreover, some structures, due to the difficult economic situation in the country, met the entrepreneur halfway and reduced the commission for the guarantee. Now they charge 0,5% for this service. In our opinion, this is beneficial for businesses — it turns out 5 thousand a year from a million rubles for the period of the entire guarantee. In short, the tool is interesting, but unclaimed.
Long red tape and long review periods are also a myth. To date, such a transaction can be executed in less than two weeks: from 2 to 7 working days, the bank considers the loan application, and a few days are required for the guarantor to review his part of the process and make a verdict on whether to join it or not.
Nuances that need to be taken into account
In order to receive state support in the form of subsidising commercial mortgages and/or guarantees, a business must meet certain requirements.
For example, startups will not be able to take advantage of this offer: it is necessary that the company has already worked for a year.
The financial performance of the business should be positive, it should not be an enterprise in bankruptcy or burdened with debts. The loan must be serviced, so the borrower confirms his solvency.
Since the bank requires collateral for the entire mortgage period, the object of the transaction must meet the requirements of the bank and meet its conditions. For example, some banks do not issue commercial mortgages for basement premises. Each credit institution has its own requirements, they need to be clarified before making a transaction. An important clarification: you cannot buy a house on a commercial mortgage (even if you buy it to rent out and do business in this way). The premises must be legally registered as a commercial real estate object.
The legal purity of the object is one of the most painful issues. All changes to the layout must be legalised, there must be a certificate of ownership of the object. All documents must be in perfect order, otherwise a conflict may arise: the bank will approve the borrower himself but will not approve the subject of the transaction.
The procedure for registration of a commercial mortgage with state support is quite simple and, in general, exactly the same as the registration of an ordinary mortgage. The client applies to the bank and collects documents according to the approved list: confirming his solvency. The bank approves a mortgage loan for a certain amount, all actions for state support of the loan are carried out between the authorities and the bank, the client does not participate in them. So tedious walks to instances is a myth.
Then the bank receives documents for the real estate object that the entrepreneur wants to buy. Legal purity is checked. If the object meets all the necessary criteria and everything is clean, then the bank makes the final decision.
The third stage is contacting the guarantor if the client wants to use his help. In this case, the bank itself contacts the organisation providing this service, provides documents, and their consideration takes up to five days. After the guarantee is approved, the transaction itself takes place.
Who guides you through the pitfalls
An entrepreneur can go through all these steps independently, or he can use the help of the companies with experience in making such transactions. In any case, a commercial mortgage with state support in Tatarstan could be more in demand if entrepreneurs knew about it.
Of course, as in any case, there are pitfalls — each bank has its own requirements, there are certain nuances in working with guarantors. At each stage of transaction, an unprepared entrepreneur may be refused if he did something wrong or issued something incorrectly. This is how stereotypes are formed about a clumsy state machine, getting something from which is nerve-racking, tedious and fraught with trouble in the future.
The question may arise: why does an entrepreneur need a mortgage at all, if, for example, he wants to buy a room for cash? Discussions on this issue have been going on for a long time, but many of our clients, coming to buy office and warehouse premises for money, learn about this possibility — and change their decision.
The thing is that after having issued a commercial mortgage with state support, a businessman gets the opportunity not to withdraw money from circulation simulteneously, and this is critically important for SMEs. Money is getting cheaper every year, losing purchasing power, and in this regard, stretching the same payments at a low interest rate for several years in some cases turns out to be much more profitable than simultaneously investing a sizeable amount in real estate.
The summary is the following: state support is not scary at all. It is important to know where to “lay the straw”, and then new, very interesting opportunities may open up for small businesseses in the republic.
The author's opinion may not coincide with the position of the editorial board of Realnoe Vremya.