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Commercial Property Finance
What is commercial property finance?
Commercial property finance helps business owners to invest in property, whether for commercial use or to add to a property portfolio. Given the considerable capital required to buy property outright, commercial property finance will probably be the only option for this type of investment.
Commercial mortgages and bridging loans are two main forms of commercial property finance, so how do these products work?
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How do business mortgages work?
Commercial mortgages are similar to residential mortgages in that a commercial mortgage provider offers to lend a percentage of the property’s value. The shortfall is paid by way of a deposit, which is typically larger than a deposit on a residential property.
Monthly instalments are made over a fixed mortgage term and the lender places a legal charge over the property to secure their money. This document sets out the terms under which the money has been released, and is signed by the borrower and registered against the property at Land Registry.
Different types of commercial mortgage
Owner-occupier commercial mortgage
This type of mortgage is used to purchase a property that will be used by the business making the application. Owner-occupier commercial mortgages typically require a deposit of around 75 per cent of the property’s value.
Commercial investment property mortgage
This is suitable for businesses intending to rent out a property for business use, rather than using the property as their own commercial base.
Property portfolio mortgage
Property portfolio finance is a single mortgage account for buy-to-let investors that covers a portfolio of properties.
How do commercial bridging loans work?
A commercial bridging loan is a short-term finance facility that usually lasts between three and six months. It can be used to purchase a property when speed is of the essence as the money can be released quickly but the applicant must present a clear plan for how they will repay.
Bridging finance might be used when a commercial landlord sells their property but needs to complete quickly. If the tenant company wants to buy the property, for example, it may need to apply for commercial bridging finance to secure the deal whilst a mortgage is arranged.
Bridging loans may also facilitate the purchase of commercial property at auction, or for property investors to bridge the gap between buying a property for their portfolio when a sale to release the funds has yet to complete.
Qualifying for commercial property finance
Eligibility criteria vary widely between commercial property financiers, but some criteria typically apply across the board. These include:
- Loan-to-value ratio (LTV)
- Type of property being purchased
- Business credit rating
- Personal credit rating of the applicant
- Whether the business can afford the repayments for the full mortgage term
Even though lending criteria differs between mortgage lenders we know the requirements of all UK lenders and can ensure that you are matched with the most suitable one for your business. Legal fees, valuation fees, and arrangement fees also need to be considered when applying.
Applying for commercial property finance can be a complex process. The terms and interest rates offered by lenders are a direct representation of how risky they perceive the lending to be so it is imperative to present your business in the best light.
UK Business Finance can do just that. We take the time to understand your needs and ensure that all criteria are met prior to applying. Please get in touch with our expert team to find out more.
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Why use a commercial finance broker?
A commercial finance broker plays an important role for businesses looking for funding. They can source the most suitable types of finance using a whole-of-market search strategy whilst also accessing the best deals and lenders.
What are cash flow forecasts and why are these important when obtaining business funding?
Operating with positive cash flow helps your business to pay its bills, conduct day-to-day trade with minimal issues, and plan confidently for the months and years ahead. But how do you know that there will be sufficient cash available when it’s needed?
Good debt vs Bad debt
Managed well, debt can improve your credit rating, enable expansion, and stabilise cash flow. It’s the backbone of growth but with so many different types of borrowing now available, it’s important for your business to carry ‘good debt’ rather than ‘bad debt.’
How to best prepare my company for a finance application
When preparing your company for a finance application, it’s key to present the business in its best light whilst also providing realistic projections, your plans for the funding, and how it will help the business grow.