What is Commercial Property Finance Lending?
Commercial Property Finance lending is any loan secured on commercial property that is looking for financing or refinancing. The property can be either owner occupied or for investment purposes. It can also be known simply as a commercial mortgage for commercial premises. These types of mortgages are available for many countries but mostly we have access to many commercial mortgage lenders in Europe that are happy to look at lending. Our lenders are mainly non bank institutional lenders that draw their funding requirements from large pension and investment funds, We also have commercial banks and also private investors that are happy to lend. This type of commercial finance funding used to be provided by traditional high street commercial mortgage lenders but their liking for this type 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 The high street lenders have now been replaced by challenger banks who are obtaining their financing requirements from the bond markets and investment and pension funds.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 against commercial properties. We work with active commercial real estate lenders throughout the UK and Europe from the bank and non bank lending panels.
What Types Of Commercial Financing Can Our Lenders Offer?
- Opportunistic recapitalizations
- Capital improvement
- Redevelopment and adaptive reuse
- Construction and development
What Commercial Properties Can Your Lenders Finance?
- Office Blocks
- Student Accommodation
- Retail – retail stores, shopping centres, shops
- Industrial – warehouses, factories
- Leisure – hotels, pubs, restaurants, cafes, sport facilities
- Healthcare – medical centres, hospitals, nursing homes
- Strategic Land
What Locations Can Our Commercial Funder’s Lend On
- United Kingdom
- United States
- Plus many more European countries
What are the Key Features our Commercial Finance
- Commercial property loan interest rates start from 5% per annum
- Typically LTV of up to 80%
- Options with no Exit Fees
- 1 Year to 15 Year terms
- Options with no Personal Guarantees.
- Commercial Loan sizes ranging from EUR2m up to EUR500m
- Full UK Coverage. (For Europe, Asia and the United States terms will differ slightly)
- Valuation and Surveyor fees case by case.
Commercial finance lending usually falls 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?
A Commercial loan 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 fees are involved?
Arrangement fees: Arrangement fees are typically added to the loan after the loan is approved but some lenders may request the arrangement fees earlier to cover their work in case you don’t accept their offer. Arrangement fees are usually 1% -2% of the loan amount for loans up to £1 million for a commercial property mortgage.
Valuation Fees: A valuer will visit the property and write a report to the lender. Commercial valuations can start at around £500 for a simple case, the fees are based on an individualised quotation which is payable to the lender after an initial indicative offer has been accepted.
Legal Fees: You’ll need to pay both your own legal fees as well as the lender’s which can start at around £500 for each party.
Broker fees: A broker gives you advice specific to your situation and real estate and presents your case to the lenders. Their service is usually charged at up to 1% of the loan value.
Eligibility and criteria
In order for you to qualify for a commercial mortgage, you’ll need to pass the lender’s eligibility checks which usually includes:
- The cash flow and any debts you may owe to assess the financial health of your company
- Your businesses’ projected income to determine whether you can cover the cost of the loan
- Your ability to pay the deposit which can range from 20% to 40% of the loan
- Rental income may also be taken into account as this will have an effect on your business’ cash flow
- General income, credit and assets
What information would I need to provide for Commercial Finance Lending ?
- Applicant company name & Ltd Company number.
- Full property address.
- Sales and Purchase agreement
- 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?).
If you are in the world of business, then it is likely that you have heard the words “commercial finance” uttered once or twice. But despite it being common jargon within the industry, it can still conjure up uncertainty for some business owners, unaware of the options available to them.
So firstly, a simple definition. Commercial finance is the term given to a huge range of business finance products that include both short and long-term solutions, offered by a provider external to the business.
A business might seek interest only commercial mortgage finance if they have reached a point where growth is imminent. Sometimes there is an obstacle in the way of attaining necessary growth – and that obstacle is funding.
Commercial finance ensures that businesses, regardless of size, can thrive and hit their targets, rather than miss out purely because they have to wait to generate enough cash to re-invest for themselves. Commercial finance is essentially a way of providing working capital for businesses.
Better access to commercial finance has paved the way for small and medium-sized enterprises (SMEs) to flourish.
Recently the commercial finance landscape has expanded, where as once there was just banks, alternative finance providers have businesses more options than ever before. 25% od small scale businesses have their loan applications rejected by banks but these new alternatives give fast access to businesses who would otherwise have to go without.
It means there are better options for everyone out there, whether that means you are a business owner wanting to achieve growth or a customer looking to shop around within a specific market.
Who Can Access Commercial Finance?
The answer to this is pretty straight forward. Anyone who owns a business can make an application for a commercial mortgage either direct to the lender or using a commercial mortgage broker.
Criteria varies from provider to provider but ordinarily you will need to show business bank statements, management accounts and director information. With some alternative finance providers there is less rigidity in their criteria but a lot of online lenders use algorithms that can mean their assessment criteria are almost as black and white as the banks. There are also solutions available for businesses with adverse credit or start ups who traditionally have struggled the most to find finance.
What Commercial Finance Options Are There?
There are numerous commercial finance options available to businesses, but what exactly are they?
Short-term commercial finance:
– Trade credit
– Business credit cards
Medium-term commercial finance:
– Bridging finance Business loans
Long-term commercial finance:
– Asset based lending
– Invoice factoring
– Invoice discounting
– Commercial mortgages
Which Commercial Finance Option Should You Choose?
There is never a one shoe fits all option in life and that is certainly the case when it comes to commercial financing or locating a commercial mortgage for businesses.
Taking out external finance for your business is not something you should decide on a whim. It is important to put the time and effort into ensuring you get funding that suits you and your business best. Finding finance should be treated like any other business partnership, do the appropriate due diligence, look around and make comparisons on all the options available to you.
Once you have done your research, and got to know the market, if you are still unsure, talk to an alternative business finance provider to learn more.
There are various factors that you will need to consider before moving ahead with a commercial finance application. You will need to think about the following:
– Why do you need finance to begin with?
– What industry do you operate in?
– The term: how long do you want the loan to last?
– How big is your business?
– How much money will you need to achieve what you have in mind?
– What is your risk profile?
– How much can you realistically afford to repay each month?
Once you have seriously contemplated all of these things, you will then understand where your business stands and the type of finance you require should become evident. But again, if you still are not completely sure, get in touch with the experts as this is exactly what they are there for.
Next, you will need to decide whether you want to take either the debt financing route like real estate financing, or whether equity financing is the better option for you.
Equity finance involves surrendering a share of your business to an individual or institution in exchange they get a share of your business in return for their investment.
Debt finance comes from a bank or commercial finance company. You will have to pay the loan back, usually with added interest. The majority of commercial finance that is available these days will come in the form of debt financing and means adding a liability to your balance sheet.
You should also bare in mind the price of the commercial mortgage by comparing commercial property mortgage rates as they can fluctuate considerably between banks and non bank lenders so its wise to stay abreast of where rates are.
So now that you know what is what in the commercial finance world, all that is left to do is weigh up the pros and cons.
The Pros And Cons Of Commercial Finance
Starting with the negatives, some business owners prefer to avoid external commercial finance because they do not want to take on extra debt. Similarly with equity finance, businesses are reluctant to surrender any control or ownership of their business, particularly as if the business is successful the equity will most likely be worth much more than the original loan amount.
However, if you can get past the stigma attached to borrowing for your business, commercial property lending can fund growth opportunities and help you to achieve your goals. You can use either the sales ledger or tangible assets as security or to leverage your loan against. When you consider the fact that approximately 60% of SMEs are uncertain about their potential to finance lasting growth, commercial finance is a pretty attractive option for SMEs.
Borrowing money can also help businesses tackle late payments and help to even out cash flow and balance the books. Almost all businesses have times in the month or year where they experience cash flow peaks and troughs, navigating these can be much easier with a funding partner in place. For example, invoice finance is a fantastic way for businesses to access cash that is tied up in unpaid invoices. For many businesses, this is a great and viable option. They often have to provide their customers with credit terms that extend beyond those they are given by their suppliers and invoice finance helps to smooth this gap in cash flow.
In industries with costly equipment set-up costs or where lots of machinery or technology upgrades are required, commercial finance can allow businesses to spread the cost of purchasing over many months. Replacing equipment or getting urgently needed repairs done is often not a choice but a necessity for businesses and commercial finance can help to ease the burden.
Ultimately, you need to ensure that you find commercial property lending finance that fits your business. Different products suit different business life cycle stages and the most important thing to remember is that being proactive, rather than reactive is always best, especially when it comes to finances.
Finding finance before you need it means you can look at the whole picture objectively and select a finance strategy that works for you and your business in its entirety.
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