Commercial finance is the function of offering loans to businesses, generally secured by business assets - in this case, we shall focus on property. As you will probably know, most institutional funders have tightened criteria to such an extent that lending is severely prohibited. There are some signs that criteria are relaxing, but if you’d care to ask most businesses who are looking to their business bankers for financial support as to exactly how much support they are receiving, the reply will generally be rather negative. That said, it’s not all doom and gloom, as there are still funders out there who have the appetite and the resources to fund any truly viable deal....
A summary of property-related commercial finance is as follows:
Contrary to popular belief, development finance is still available for residential and commercial developments.
Experience and a good track record are essential if an application for funding is to be taken seriously. Chances of getting such funding from the high street currently are very slim. As such, specialist second tier funders or private funders are usually the best sources to approach for development funds. Most active funders prefer smaller developments (up to 5 units) only containing houses in areas where demand can clearly be shown to exist, so nothing too speculative! The best products out there at the moment are offering funding of up to 65% of GDV (Gross Development Value) at a cost of 7% per annum, with a 1 to 2% arrangement fee and 3 to 4% exit fee. Generally the more cash the applicant has to contribute to the project, the better (and less expensive) the chance of funding. 100% funding is available in certain circumstances, for which you can expect to have to share the profits from the development with an investor.
Commercial mortgages can be arranged for the purchase or remortgage of factories and offices, warehouses and storage, investment property, B&Bs and guesthouses, pubs and restaurants, takeaways, garden centres, residential homes, nurseries, farms and so on. A commercial property investment mortgage is available to companies looking to purchase a business premises as an asset, which brings the benefits of rental income and appreciation. Commercial owner occupier mortgages are available to companies looking to use the property as their business premises. As most commercial mortgage products still come from the high street, the tick-box mentality is evident and consequently applicants have to have a clean credit history and be able to demonstrate good financial standing. Depending on the type of property, LTV’s (loan to values) can peak at 80% at a cost of 2% to 4% over base rate.
Bridging Finance is a way of raising short term finance in a very short time period and is usually secured against a residential or commercial property. As a bridging loan is secured in this way, personal credit history is not always as relevant as with applications for other types of finance. It is typically used to bridge the gap between a purchase and either a traditional re-finance or sale of, for example, land, properties purchased at auction and/ or investment properties.
Currently funders are offering up to 70% of CMV (Current Market Value), or 85% of purchase price (whichever is the lower), at a cost of 1% per month, with a 1% arrangement fee and a 1% exit fee.
If you would like to ask John a question click here