Commercial Finance Advice
The world of commercial loans and commercial finance is more varied than ever, and it can be difficult to know where to begin. If you want to learn more about the options available to you, we can help you find the right loan or other type of commercial finance from a range of providers across the whole market.
Talk to our expert commercial finance advisors today. Fill out a contact form online or call us for a chat on 0300 124 5655
Scroll down for more information and FAQ’s.
What is commercial finance?
Commercial finance covers a wide range of areas. In its simplest form, it’s finance for business purposes – sounds obvious doesn’t it? There are lots of different reasons someone might require commercial finance, but they tend to fall within one of two categories, these are:
- Owner occupier mortgages (generally used to purchase your trading premises for your business to operate out of)
- Commercial investment mortgages (where you will be renting the commercial premises to third party)
What types of commercial mortgages are available?
There are loans available for a vast variety of commercial reasons. All require different criteria to be eligible, and this is where your commercial mortgage expert will be able to advise on the best way forward for your circumstances.
The following property types (to name a few) would typically require commercial finance:
- Retail commercial investment – Retail units, retail parks and multi-unit developments
- Office properties – Office blocks, business centres etc.
- Agricultural – Farms, buildings and building on farmland
- Semi commercial – For example it could be a row of shops with flats above shops which will be let out
- Leisure – Pubs, clubs, restaurants, gyms, hotels, leisure centers and indoor activity centers.
- Professional properties – Private schools, nursing homes, doctor’s surgery’s and solicitor’s office
What is development finance?
Development finance is used for bigger developments such as turning an old office block into apartments, or construction on land with planning permissions (with the exception to this being building your own home). This sort of finance is normally for experienced developers, and the underwriters will have to be comfortable that the development costs and gross development value are realistic.
Like a bridging loan, the interest is rolled up so the longer the development takes to complete the more costly it will be. Normally the maximum time period that the development finance remains in place is 2 years.
The information needed to get the deal agreed will be lengthy, this is where your commercial mortgage expert will really help. They will help you to ensure that your proposal has everything in place prior to an application being submitted, such as any necessary planning permission, building regulations, information around contractors, total costs, duration of the project. This is only a small example of what will be needed, and each case will be different – using a commercial mortgage expert will give you the best chance to get your deal agreed.
What is a bridging loan?
Bridging loans are most commonly used by borrowers who are looking to purchase a property having put down a deposit as with a normal property sale, and then use the bridging loan to finance the balance of the purchase – this is typically used when purchasing a property which is either uninhabitable or un-mortgageable, this then allows the borrower to complete any work that may need undertaking to make the property habitable. At the time the bridging loan is agreed the lender will want to know what your exit strategy is; this is typically either by getting a mortgage to pay back the bridging loan, or through sale of the property.
Bridging finance can also be used to break a chain – that is to say that if a borrower is waiting on the sale of their home and need to complete on a new property before the sale has gone through, the bridge can fill the financial gap until the old property sells.
Auction buyers are another example of when a bridging loan can be vital, this is due to the time constraints when purchasing at auction (typically needing to complete within 28 days), and also some auction properties are not habitable/mortgageable – this could be down to it having no bathroom, no kitchen, or requiring structural work.
As the interest on bridging loans are rolled up there is much less reliance on what income the borrower has – it’s all about the exit strategy. Most bridge loans are either for a 6 or 12 months duration, and there are no monthly payments to make with the interest being rolled up (compound interest) until the loan is paid back.
The interest rates and fees associated with bridging loans are more expensive than a standard mortgage, so this is why it is vital to make sure all costs have been factored into the purchase. Your mortgage expert will be fully regulated by the Financial Conduct Authority, and as such will give you the best advice possible to ensure that a bridging loan is actually the correct and most cost-effective way for you to achieve your end goals.
What is a regulated bridging loan?
A Bridging loan is classed as regulated when it is secured against a residential property that you are currently living in, have previously lived in, or plan to live in. There is more protection when the loan is regulated as its protected by the Financial Conduct Authority, this will give you another level of protection, your mortgage expert will always be regulated by the Financial Conduct Authority when any borrowing is regulated.
What is an unregulated bridging loan?
This is when the loan isn’t regulated. That means that the loans are more tailored to the circumstances and can therefore be more flexible and this gives the lender more flexibility to take a commonsense approach to a deal. Your mortgage expert will have access to the whole of the market and will advise on the best option for your circumstances.
What is an open bridge loan?
This is when there isn’t a fixed date for the loan to be repaid, the normal scenario would be the lender asks for the loan to be repaid within 12 months, whichever the reason you need the loan to be open, buying a property and not sold your residential ? or maybe looking to buy one , renovate and sell. The longer the loan is in place the more interest you will pay, this is a key point. Exit plan will need to be evidenced with all lenders.
What is a closed bridge loan?
Very simply this is when there is a date in place for the bridge loan to be repaid, most commonly used when you have a house sale which has been exchanged but not completed and you need the funds before to purchase your next property.
How much deposit will I need for a bridging loan?
The key point to remember when looking at a bridging loan is the maximum loan to value (LTV) will include the rolled-up interest and any fees. The standard maximum LTV is 75%, however this varies depending on the lender. Some lenders will allow a 100% LTV bridge loan, but you will need to use other assets as a security and potentially cross charge on other properties/assets.
Can I get a mortgage if I am recently self-employed?
This will be dependent on how recent you became self-employed. You would need to have been trading a minimum of 9-10 months and have a proven track record in your industry. Even with this, the number of lenders would only be small. You would also need a good deposit to strengthen your case.
What are the timescales involved in a bridging loan?
One of the reasons bridging loans are used is the speed of completion and flexibility in lending criteria. Some loans are arranged with 7 days, however a safer timescale would be 14 days. Each case is different, and your mortgage expert will be able to give you a clearer timescale once they know the whole situation.
If you would like to discuss any aspect of commercial finance please complete our quick enquiry form, or contact us on 0300 124 5655