What is Commercial Finance Lending?
Commercial Finance Lending is any loan secured on property which is not your main residence. The property can be either owner occupied or for investment purposes. It can also be known simply as a commercial mortgage for non residential premises. These types of mortgages can be for many countries but mostly we have access to many commercial mortgage lenders in Europe that are happy to look at lending. These range from non bank, commercial banks and also private investors and pension funds that are happy to lend.
This type of financing is for basically securing capital against a property which is used for commercial purposes and can be broken down into the below types of properties:
- Retail – retail stores, shopping centres, shops
- Industrial – warehouses, factories
- Leisure – hotels, pubs, restaurants, cafes, sport facilities
- Healthcare – medical centres, hospitals, nursing homes
This type of funding used to be provided by traditional high street lenders but their liking for this typed of lending has diminished dramatically since the start of the lending crisis in 2007 and 2008. Commercial Property prices had a bigger downturn than residential properties and as a result there are fewer lenders in this marketplace. The high street lenders have now been replaced by challenger banks who are obtaining their financing requirements from the bond markets and even pension funds. The return on lending offers a good and guaranteed return so the market has exploded in recent years with large institutions happy to lend their clients funds because of the security they provide. Commercial finance lending fall into two categories:
Owner Occupied: this is where an individual owns the property in which they have commercial interest. This can be a shop, factory or garage. The owner repays the loan through the profitable return of their business and as such the business owns the property and they or a number of shareholders will own the business.
Buyer Investment: this is where the individual owns the property as an investment but does not run the commercial element of it. This can be an office block which local businesses lease from the owner or perhaps a building which offers residential flats. The individual simply receives revenue from the property as rental / lease payments.
What can Commercial Finance Lending used for?
Commercial loans can be used for a wide variety of reasons. One example would be if you wanted to purchase a commercial property and you wanted to convert it into a residential property i.e. an office block into a set of apartments then you could get commercial finance secured against the property to either fund the purchase and/or the conversion. If the property is already owned, you could get commercial lending just to fund the conversion. Commercial finance loans are used for numerous reasons such as: releasing equity for debt consolidation, business cash flow injection, building improvements or to purchase more new commercial properties as part of a business.
What Are The Key Features of Commercial Finance Lending?
- Arrangement fees from 1% to 2%
- Interest rates from 5% per annum
- Typically up to 70% or 75% of Loan To value
- Options with no Exit Fees after initial period
- Up to 20 years, or longer by agreement
- Options with no Personal Guarantees.
- Minimum loan £50k, with no maximum loan or purchase size
- Full UK Coverage. (For Europe, Asia and the United States terms will differ)
- Valuation and Surveyor fees case by case.
What are the Commercial Finance Lending lending criteria?
- 30 year term: Available only with residential property as security.
- 20 – 25 year term: Available from select lenders with commercial property as security.
- 15 year term: The most common term for commercial property loans.
- 5 – 7 year term: Typical terms for commercial equipment.
- Shorter terms: Used for short term business loans, invoice discounting and development loans.
- 15 year interest only term: Available only with residential property as security, from some lenders.
- 5 year interest only term: Available from select lenders for commercial property.
- 1 – 2 year interest only term: The most common interest only term for commercial loans.
- No interest only term: The option that most lenders prefer that you choose.
What information would I need to provide for Commercial Finance Lending ?
- Applicant company name & Ltd Company number.
- Full property address.
- Personal or Directors & significant shareholders CV’s or Biographies.
- Copy of the tenancy agreement.
- Rental income proof
- Detailed build costs for renovations or conversions
- Schedule of proposed works
- Details of the professional team (contractor, architect, structural engineer, CDM coordinator etc).
- Procurement Method ( Design & Build or Construction Management?).
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