Commercial Finance

Commercial Properties

A commercial mortgage is a mortgage loan secured by commercial property, such as an office building, warehouse or block of apartments. Essentially the proceeds from a commercial mortgage are typically used to acquire, refinance, or redevelop commercial property.

 

Types of properties where a commercial mortgage could be used:

  • Residential investment property
  • House of multiple occupation (HMO’s)
  • Retail and Commercial units
  • Offices
  • Warehouses
  • Professional practice premises
  • Hotels and licensed premises
  • Care homes
  • Semi-commercial premises with living accommodation above
  • Land & agricultural

 

Types of mortgage options available:

  • Repayment and Interest-only payment types
  • Short and long-term repayment programmes
  • Fixed and variable rates
  • Arrangement fees added to the loan
  • Up to 80% funding available on an individual property and up to 100% funding with additional security provided
  • Short term VAT loans available to avoid you having to fund the VAT on a property purchase from your business cash flow
  • Government funding schemes and incentives

Key features of a commercial mortgage:

  • In most cases there are no fixed rates.
  • You will pay a higher interest rate compared to a regular mortgage as there are higher risks to the lender.
  • Generally, commercial mortgages offer much better interest rates than regular business loans as these do require property collateral.

You would need a commercial mortgage if the property you would like to purchase has commercial use, for example if it is a commercial investment where you are planning on letting the property out or of it is owner occupied but you are planning on using the premises for trading.

A mortgage survey can quite quickly ascertain if the property is solely for residential use or if there is also commercial elements so it’s best to ensure the correct type of mortgage is applied for in order to prevent a decline from the Lender. Lenders need to know all the details of the property they are lending on.

Although each lender has their own critieria and assesses the application based on their own scoring methods, they all are affected by the following factors:

  • Projected income for the business in order to project if you will be able to afford the repayments.
  • General income, assets and credit.
  • Ability to pay an initial deposit which can range anywhere from 20% to 40% of the loan amount.
  • General cash flow and if you posses any debts that can affect the financial health of the company.

Most lenders will require the following documents at the time of application:

  • Commercial mortgage application form
  • Proof of identity, address and income
  • Assets, liabilities, income and expenditure documents
  • Business & Personal bank statements
  • Certified financial accounts for either the existing trading business or the target business.
  • Details of the tenant and lease (for a commercial investment mortgage)
  • Details of the property or agents sales particulars
  • Up-to-date property schedule

There are many potential variables, so it is best to consult an advisor for a tailored answer on how a loan may be structured for the type of finance you need.

  • The deposit – this is usually a minimum of 5% of the value of the property you plan to buy, but policies may vary from lender to lender and 10% is not uncommon.
  • Stamp DutyLand Tax (SDLT) – you will need to pay this to HMRC if you pay over £300,000 for the property.
  • Solicitor or Conveyancer fees – they take care of all the legal paperwork involved in a property purchase.
  • Payments to the Land Registry (when your property is registered in your name), Local Authority and various other third parties – these will be handled by your solicitor while they carry out due diligence on the property.
  • You may also need to pay a fee for a mortgage valuation or survey, depending on the deal the lender offers.
  • You may also be required to pay a mortgage adviser’s fee and, depending on the mortgage product, any product-related fees to the lender.

Semi-Commercial Properties

A semi-commercial mortgage is required for the purchase of a property with mixed-use, having both residential and commercial elements. A semi-commercial mortgage is also sometimes called a mixed-use mortgage.

Types of properties where a semi-commercial mortgages could be used:

  • Commercial units with flats
  • Guest homes that are owner-occupied
  • Buildings with self-contained offices and flats
  • Businesses ran solely from home

A semi-commercial mortgage can be used for any tenure, whether freehold or leasehold.

You would need a semi-commercial mortgage if the property you would like to purchase has both residential and commercial elements.

A mortgage survey can quite quickly ascertain if the property is solely for residential use or if there is also commercial elements so it’s best to ensure the correct type of mortgage is applied for in order to prevent a decline from the Lender. Lenders need to know all the details of the property they are lending on, even if the property has 90% residential use and 10% commercial use this would still be classed as a semi-commercial mortgage.

Although each lender has their own critieria and assesses the application based on their own scoring methods, they all are affected by the following factors:

  • Credit score - the better the score, the more straightforward the application
  • Affordability – will you be able to repay the mortgage based on your income
  • Deposit amount – higher deposits can decrease the LTV making your application more appealing to lenders
  • The proposal – lenders will look at the viability of what you are proposing, while the mortgage is semi-commercial it is still looked at as though it is a commercial mortgage and therefore the commercial element business plan is assessed

Most lenders will require the following documents at the time of application:

  • Photo ID, such as a passport or driving licence
  • Proof of address, such as a utility bill or council tax
  • Bank statements or accounts to show your income and outgoings
  • Details of existing property investments
  • Any leases for the building
  • Credit reports for the applicant/s

There are many potential variables, so it is best to consult an advisor for a tailored answer on how a loan may be structured for the type of finance you need.

Development Finance

Development finance is used to fund large property ventures, it cannot be used for small property projects such as home refurbishments, examples of development finance include property development, renovations and conversions.

  • Finance to develop new builds and conversions
  • Single units and multi-unit projects
  • Semi-commercial buildings
  • Residential property
  • Joint venture projects
  • Land purchases included
  • Finance for any level of experience
  • 85% loan to cost
  • 65% loan to GDV
  • Development loans from £25,000 to £100,000,000

The development finance proposal should contain the following:

  • Purchase price of the property and land
  • Planning permission
  • Building regulations
  • Any previous experience (documented)
  • Information of contractors (builders, architects, contractors)
  • Exit strategy (remortgage, sell, rent)
  • Total build cost (detailed breakdown including materials and labour)
  • Gross development value (GDV)
  • Contingency plan
  • Single, joint or group venture?
  • Potential yield of the project
  • Duration of the project (including stages of development)

Land Mortgages

A land mortgage is a property development loan aimed at acquiring land in order to develop it. It is where the land is purchased before building the dream home or a plot is purchased to develop on. Land is highly sought after so can be a good asset to purchase.

 

A land development loan helps the borrower acquire, develop and sell for profit the land in question. Developers and businesses need to note that land mortgages usually take up the largest share of overall project cost. For this reason, most lenders prefer to have the first legal charge on their money.

 

 

The types of mortgages available for land are:

  • Agricultural mortgages
  • Self-build mortgages
  • Woodland mortgages

The types of land to get a mortgage on include:

  • Residential plot
  • Commercial plot
  • Greenbelt land
  • Brownfield land
  • Agricultural land
  • Planning permission to build on the land either outline planning permission (OPP) or full planning permission (FPP)
  • A detailed financial plan including a projection of costs with details on the build type, construction method, materials and labour cost
  • A time frame for your project as lenders request these details
  • Deposit of usually 20% of the land value
  • Funds for the fees associated with the application e.g. application fee, valuation fee, legal fee

There are many potential variables, so it is best to consult an advisor for a tailored answer on how a loan may be structured for the type of finance you need.

Bridging Loan

A bridging loan is a short-term loan designed for property buyers and developers. It can be called a temporary loan or even a short-term mortgage. A bridging loan is to bridge the gap in the short term until a more permanent finance arrangement can be agreed, the funds can be received a lot faster than a mortgage so can be sometimes be a good alternative until the mortgage can be arranged. They are however shied away from as the interest rates and fees can be quite high.

Just like normal mortgages bridging loans also have different types:

  • First charge loans – lender will have the first charge on the property
  • Second charge loans – bridging lender has access to any funds remaining after the lender with the first charge has recouped their loan
  • Closed-bridge loans – when there is a dated exit strategy in place e.g. there is a buyer for your property with a sale date you just don’t have the funds yet
  • Open-bridge loans – no fixed date for when the loan will be repaid e.g. your home is on the market to be sold but no buyers in place just yet

A broker is usually required to broker the deal for a bridging loan as they are not offered by the usual high street lenders. The following is usually the order for a bridging loan:

  • Speak to an advisor that has experience with bridging finance and access to bridging lenders
  • The advisor can then make enquiries with bridging lenders based on your circumstances and reasons for a bridge
  • An application is made to a bridging lender
  • The bridging lender will organise a valuation of any properties involved
  • An assessment of the applicant is carried out by the bridging lender such as other mortgages & credit check
  • The loan is either approved or declined. If declined, you can either reapply with the same or a different lender
  • Solicitors are allocated to handle the conveyancing involved and placing the charge on the property
  • Bridging funds are released, this can be as fast as one week
  • If you’re using a bridge to purchase a new property, then solicitors will carry out legal work and liaise with your lender’s solicitor
  • Once the lender’s solicitor is satisfied, they will approve the loan to be released

Bridging lenders are different to mortgage lenders as they do not use personal income for their assessments, instead they look at the following factors:

  • Property valuation
  • Loan to value (LTV)
  • Gross development value (GDV)
  • Exit strategy

There are many potential variables, so it is best to consult an advisor for a tailored answer on how a loan may be structured for the type of finance you need.

Commercial Buy to Let

Commercial buy to let mortgages are only for properties purchased that are exclusively let to businesses with no residential element involved. This is different to a regular buy to let property as a regular buy to let would be for residential purposes and not commercial purposes.

Although each lender has their own criteria and assesses the application based on their own scoring methods, they all are affected by the following factors:

  • Your deposit amount (LTV ratio)
  • The lender you’re applying with
  • Your credit history
  • The commercial tenant you have (or aim to get)
  • Your experience/affordability

There are many potential variables, so it is best to consult an advisor for a tailored answer on how a loan may be structured for the type of finance you need.

Portfolio Mortgages for Landlords

A portfolio mortgage is where landlords can add all of their buy to let mortgages to just the one mortgage, this is then treated as one account as oppose to multiple different mortgages with different monthly payments to different lenders. The portfolio is registered as a limited company and income and expenditure is treated exactly the same as any other business model.

The term property portfolio is used when the landlord has at least four properties, this is usually the bare minimum requirement.

Advantages of a portfolio mortgage are as follows:

  • Organised single monthly repayments
  • Simplified finances with one lender
  • Tax efficient portfolio
  • Equity can be utilised to grow the portfolio
  • Diverse portfolio can increase buying power

Disadvantages of a portfolio mortgage are as follows:

  • An element of risk is involved as with any finance product purchase
  • Portfolio mortgage lender require the properties to be under a limited company and transferring them can be costly
  • Limited company comes with its own costs and administrative duties

There are many potential variables, so it is best to consult an advisor for a tailored answer on how a loan may be structured for the type of finance you need.

Refurbishment Mortgage

A refurbishment mortgage is where a loan is taken out exclusively for the purpose of refurbishing a property, it can be either light refurbishment or heavy refurbishment. It is usually released in two steps, firstly as a percentage of the purchase price and secondly once the refurbishment has been completed. The amount of the mortgage is usually based on the anticipated value of the property after the refurbishment has taken place.

Light refurbishment finance is for properties which only require small improvements which cost under 15% of the total property value. Usually if the refurbishment doesn’t require planning permission or building regulations, then a light refurbishment loan would be suitable.

Examples of light refurbishment include:

  • Fitting a new kitchen/bathroom
  • Installing new windows
  • Electrical rewiring
  • Installing a central heating system
  • Redecoration
  • Cosmetic improvements

Heavy refurbishment is for properties which require larger scale changes which are over 15% of the total property value. The work could be structural and require planning permission as well as adherence to building regulations.

Examples of heavy refurbishment include:

  • Structural works either internal or external
  • Projects requiring planning permission
  • Property extensions
  • Property conversions
  • Building regulations

There are many potential variables, so it is best to consult an advisor for a tailored answer on how a loan may be structured for the type of finance you need.

Short Lease Mortgages

A lease defines the length of time that you own a property for when it sits on land owned by someone else (the freeholder). At the end of the lease term, the property will go back to the freeholder unless the lease is extended.

Properties with a short lease can be troublesome for buyers as many high street lenders will not consider lending on properties with less than 70 years left on the lease because the value of the property will begin to drop the closer the property gets to the end of the lease. Some valuers do not like recommending a property for a mortgage if there is not at least 80 years left on the lease, so it is important to approach the correct lender first time.

There are however some mainstream lenders who will be able to lend as long as the length of the lease is at least 35 years at the end of the mortgage term. For example, you can get a 5 year mortgage on a property with 40 years left on the lease or a 15 year mortgage on a property with 50 years left on the lease.

The most important thing to clarify on lease lengths below 20 years is that the lease is a “qualifying lease”, i.e. able to be extended beyond 21 years.

Generally speaking, lenders typically consider leases of 70 years and below as “short leases”, however this does vary from lender to lender with some able to consider leases as short of 11 years at the end of the mortgage term for Central London properties.

 

Speak to our team to determine if a short lease mortgage is required.

Each Lenders criteria differs so get in touch to discuss your options and what documents would be required for your circumstances.

There are many potential variables, so it is best to consult an advisor for a tailored answer on how a loan may be structured for the type of finance you need.

Business Loans

A business loan is money lent to a business that is specifically intended for business purposes that must be repaid over a period of time with added interest.

A business loan is intended for business use only such as buying stock or upgrading equipment, whereas a personal loan is intended for personal use, such as making home improvements or financing a vehicle.

Business loans can take different forms and provide specific needs for specific types of businesses and business needs. Types of business loans include:

A business loan works by lending a lump sum of money from a business loans provider, such as a loans platform or a bank, to a business.

This money is then used for business purposes to help grow the business or to support the business financially. The business then repays the loan with added interest over an agreed period, and this agreement is known as loan terms.

Business loans can be short term (durations of up to 24 months), or long term (durations of 3 years or longer). Secured business loans require you to put up collateral, which the lender will take possession of should you fail to meet repayments. Unsecured business loans do not require collateral and are easier to obtain.

A business loan may require:

  1. Business bank statements for up to the last eight months

They must show:

  • The Account name and (where possible) the registered address. These must match the business you create the loan application for.
  • The sort code and account number.
  • All daily transactions.
  1. Latest full unabbreviated accounts

This must include:

  • Profit and loss
  • Detailed profit and loss

Balance sheet information

Invoice Finance

Invoice finance is when the lender uses an unpaid invoice as security for funding, giving you quick access to a percentage of that invoice’s value quickly, sometimes within 24 hours.

The amount of money a provider will lend you is based on its own risk criteria. But this method of funding lets you access finance for cashflow or investment purposes, using an often-untapped asset on your balance sheet.

The two main types of invoice finance are factoring and invoice discounting.

Eligibility factors can vary from different providers, but you should qualify for invoice financing if:

  • You raise invoices to business clients or customers for a product or service (not consumers)
  • You have reliable customers with good credit records
  • You are a Limited company, LLP or sole trader
  • Your business is based in the UK or Ireland

It is worth noting that some providers may only accept businesses with a minimum turnover per annum and minimum monthly invoices sent per month.

Unlike a traditional loan, invoice finance is an effective form of borrowing money without feeling like you're borrowing money. It's an advance of the money that's owed to you. You pay a small fee to the lender to receive all of that money.

Keeping a healthy cash flow when you're in business isn't easy at all times. So it's great to have an alternative route to funding that keeps your business running smoothly.

Many businesses find it hard to gain funding such as traditional lending from the bank. You are not judged on your historical financial performance but the ability to make sales and retain customers.

You're in control of how many invoices you submit, so you know how much could be eligible for the advance. This means you can predict your cash flow for the coming months.

Asset Finance

Asset finance is the practice of using a company’s balance sheet assets (such as investments or inventory) as a security to borrow money or take out a loan against what you already own. It can provide a secure and easy way of getting working capital for your business.

Various things can be offered as collateral, from inventory, machinery and even buildings. 

Asset financing is suitable for a wide range of businesses and organisations, including sole traders and small to medium-sized enterprises, as well as larger companies and corporations. In the past, this tended to be an avenue only used by bigger businesses, but with the minimum levels of finance available being lowered, this has now become a more widespread option for all kinds of businesses seeking asset-based finance.

Some providers however tend to specialise in certain company types, such as limited companies, public limited companies (PLCs) or similar.

While the limits will change from provider to provider, it shouldn’t be too difficult to find asset finance for sums as small as £1,000 up to a maximum of around £10 million. However, as with any form of loan, the provider will need to be happy that the business can afford the repayments before the loan or purchase is approved.

Typically, the length of any asset finance agreement – especially that which involves the purchase of a particular piece of equipment – will be governed by the operational lifetime of the asset. Generally, this will tend to be between one to seven years, although the length may be shortened or lengthened at the discretion of the finance provider.

Generally, asset finance providers will consider a wide range of high-value items – both for purchase and leasing or borrowing against. However, these assets must be identifiable, movable, durable and saleable.

In addition, there are two broad categories of assets that can be financed: hard and soft assets.

Auction Finance

Auction finance is a type of bridging loan or short-term finance used for buying property at an auction. This can be ideal for the auctioneer’s requirements, as it can be provided quite fast.

Many auction houses require property buyers to complete the purchase within 14 or 28 days. On the fall of the gavel, you’re exchanging contracts that are legally binding and therefore have to meet these timeframes.

The loan can be used to fund your deposit, the balance, or the entire auction purchase itself. The flexibility of a loan can cater to a number of deals.

More significantly, the speed at which finance can be arranged is the reason so many investors use this type of loan.

Auction finance can be used to fund the following property types:

  • Residential
  • Commercial
  • Mixed-use properties and semi-commercial
  • HMO and multi-lets
  • Plot of land
  • Uninhabitable and rundown homes
  • Unmortgageable properties

Mortgages are typically approved on properties with standard construction, whereas auction lenders will consider a wider range of property types.

If the property was mixed-use for instance, you could consider a semi-commercial mortgage.

Auction finance can still be used for mixed-use properties, saving precious time. This flexibility allows investors to secure deals they otherwise wouldn’t be able to do.

Although finance tends to be faster than traditional routes such as mortgages, you’ll still need to plan before making any bids.

Auction finance usually works in the following way:

  • Selecting a lender
  • Due dilligance on the proposed property you’re buying
  • Pre-approval or provisional acceptance
  • Winning the auction

 

Finding finance after having a bid accepted is possible, but not advised. This is simply a risk you don’t need to take and can be avoided by planning beforehand.

Lenders also have time to evaluate your proposed purchase. You’ll also have more time to find the best deals possible.

Land Bridging Loan

Bridging loans, also known as bridging finance is a type of short-term finance used to purchase or refinance land, quickly. There are many different uses for this type of finance against land, such as bridging whilst planning permission is obtained or purely to release funds quickly.

The purchase of a piece of land, with the intention of applying for planning permission, would be ideal for a bridging loan. Once planning permission is granted, you would then refinance to development finance, to allow you to proceed with the build.

There are many reasons why people choose to take out this type of borrowing. Some of the more common reasons are as follows:

  • To complete the purchase of a piece of land quickly.
  • To raise capital needed to use elsewhere.
  • To fund a planning application, allowing the land to ultimately be developed.
  • Completing a purchase that has been agreed subject to planning.

Although your personal circumstances will be checked when looking to make a new application, they aren’t the whole story. Lenders will look at the following info about you:

  • What your current financial situation is.
  • What you’re planning to do with the funds raised and how this might affect your finances.
  • Whether you can keep up the repayments if paying the interest monthly.
  • Your credit history may be taken into consideration by some lenders.
  • Your experience in this type of transaction.

 

In addition, the lender will look at the security offered. The key questions here will be:

  • Is the land suitable security?
  • What is the value of the land?
  • What is the exit strategy and is it realistic?
  • Does the land have planning permission?
  • Is there any alternative use of the land should the proposed exit fail?

Land bridging finance can be offered to a range of borrowers, including:

  • Individuals
  • Offshore companies
  • Partnerships
  • Limited companies
  • LLP / other company structures
  • Pension funds (where the pension fund is allowed to borrow money)

Bridge to Let

Bridging finance is always short term, and lenders require the borrower to have an exit strategy in place before they will lend the money. This would take the form of either selling the property or refinancing it onto another mortgage type.

Bridge to let loans are designed for the buy to let market, to allow investors to buy a property they’d otherwise struggle to finance with a traditional mortgage (using bridging finance); but have the added benefit of an exit strategy in-built, by way of a pre-approved refinance onto a traditional buy to let mortgage.

  • You may be waiting to sell your home; but want to buy another property that has just come onto the market.
  • You may be looking to buy a property at auction (most have 28 day terms and bridging finance can be arranged in a couple of days or weeks, unlike a traditional mortgage which can take a couple of months.)
  • Bridging finance can also be used by developers who may want to buy and renovate a propertyand then selling them on for quick turnaround profit.
  • To repay tax bills where other lenders won’t allow it
  • Essentially any time you need short term cash.

Some of the benefits are as follows:

  • Pre-approval of exit finance
  • Bridging loans can complete quicker than traditional loans
  • Bridge to let loans can be used at an auction
  • Bridge to let mortgages can help break property chain issues
  • Bridging finance is an option for uninhabitable properties
  • A bridge to let loan can be used to buy and renovate a property

For bridge to let investments, the “let” element is the exit strategy. It is not necessary to have an alternative plan as part of the agreement, however if someone was to change their mind and sell the property instead of refinance, this would be OK with most lenders so long as it happened before the end of the term.

There may be occasions where the sale of the property is enforced, of course, for instance if the work done on the property to renovate it was not up to standard, and the project went over budget leaving the borrower with no equity or cash left to get the property into a habitable and lettable state.

The only other option here would be an extension to, or re-mortgage of a bridging loan to another bridging loan.

Large Bridging Loan

A large bridging loan is a short-term financial solution where the gross loan amount exceeds 4 million pounds. Large loans help provide urgent funding to purchase property and can help remove the worry of missing a lucrative property investment opportunity. You can borrow funds for as long as 24 months with this large, short-term product, and there are no early repayment charges, meaning you can organise a suitable exit plan in a timeframe that works for you.

  • A large bridging loan may be the best financial option if you are experiencing any of the following scenarios:

    • You wish to buy a property at auction, and you need the funds in order to secure the purchase with the auctioneer
    • You haven’t yet sold your property, and you wish to buy another property before doing so
    • You are struggling to secure a loan with another lender because the property is in disrepair, or needs extensive renovations
    • Your preferred mortgage lender is taking too long to process your application, and you need faster access to the capital
  • Bridging loans are available to individuals, sole traders, partnerships and limited companies.. Lenders tend to impose a minimum age of 18 years for borrowers. There isn’t a maximum age limit, however some lenders may occasionally enforce a limit if they feel that it is justified.

    While you may understandably assume that a clean credit history would be vital to take out a quick bridging loan, it is in fact only security held in the form of a property or other collateral which is required to obtain a bridging loan. Lenders will normally ask that you either currently have equity in your property, or whether you are able to put down an initial deposit towards the purchase.

Open bridging loans are extremely flexible, in that no repayment date is fixed, but they will normally be due for settlement at twelve months or then reviewed and or renewed for a further twelve months.

Closed bridging loans are agreed with a fixed repayment date, usually within 1-12 months of taking the loan. This kind of bridging loan is the norm when you have exchanged contracts on a property purchase but are waiting for completion. In this scenario, average bridging loan interest rates will be lower than for open bridging loans.

Whether a bridging loan is open or closed, the lender will need evidence of an exit strategy – in other words how the loan will be repaid – for example using the equity from a property sale, a mortgage or other funding solution. Lenders may favour applicants who also have a back-up plan, in case the preferred repayment strategy fails, and largemortgageloans.com will be happy to offer you full professional advice in this regard too.

The lending criteria for bridging loans are far more flexible than those of a standard mortgage application. This means you’re able to successfully apply for a large bridging loan even if you have a poor credit score. Applicants must be over 18 years of age, but there’s no strict upper age bracket.

Lenders are more interested in smart business moves, meaning that as long as you have property that can be used as collateral and a sound exit strategy to give lender’s confidence that you can make your repayments, you’ll be considered for a large bridging loan.

Commercial Bridging Loans

A commercial bridging loan is a short-term loan secured on a commercial property. Those taking a commercial bridging loan need to have a clear strategy to repay the loan when it is due. This might be using the sale of the property, funds from the business or refinancing to a longer-term of borrowing with a lower interest cost, such as a commercial mortgage.

The main four differences between a bridging loan and a commercial mortgage are speed to complete, the length of term, the interest cost and the underwriting criteria.

Bridging loans can complete in weeks compared to the months it can take to complete a commercial mortgage. This is because bridging lenders often used automated/desktop valuations that are quicker than waiting for a physical valuation where a surveyor views the property in person. 

Bridging loans are designed to be used for short periods of time, often no more than 18-months, whereas a commercial mortgage could have a term of many decades. 

Bridging loans have higher rates of interest than a commercial mortgage. This is to cover the additional risk the lender is often taking compared to a standard commercial mortgage. 

The different types of commercial property that could be bought using a commercial bridging loan are:

  • Public houses
  • Industrial units
  • Petrol stations
  • Retail units
  • Offices
  • Garages
  • Warehouses
  • Care homes
  • Farms and agricultural buildings
  • Schools
  • Doctors and dentists
  • Hotels

A commercial bridging loan can be used for any of the following:

  • A cashflow injection in to a business
  • To cover staff costs
  • To purchase new commercial premises
  • To renovate a property

Development Exit Finance

Development exit finance is used to repay outstanding property development finance once the project is nearing completion. They are a type of bridging loan and are usually offered with rolled up interest for the full term of the loan.

These loans can usually be offered once the building is wind and watertight.

The main reasons why this type of finance is attractive are as follows:

  • The existing development finance facility is coming to an end and sales won’t be completed in time.
  • The development finance can be expensive so development exit finance can be used to reduce finance costs.
  • It can be used to release capital from a development before sales come through, allowing you to move on to your next project. The funds can be arranged very quickly where fast completions are required on new projects.

It can help you to avoid extension fees and exit finance can often be obtained at a cheaper rate than your original development finance. Developers can often save considerably by switching to a developer exit loan when their site reaches or is approaching, practical completion. 

  • Residential properties: Flats, Houses, HMO's etc.
  • Properties in England and Wales
  • Multiple security welcomed
  • Details of the Security Properties
  • Marketing Strategy of properties
  • Details of reservations, exchanges, and completions
  • Details of directors of company; or borrower(s), if loan is to property developer(s)
  • Original Red Book Valuation (if available)

Mezzanine Finance

Mezzanine finance is often used to compliment other forms of funding on projects and is ideal for a business with the potential for years of growth and sustainable profits. It is a loan made against a potential stake in a company’s equity. The lender can convert debt to equity or shares in the company as part of the agreement, or if the loan repayments are not fully repaid. 

Mezzanine capital is more appropriate for established UK SMEs with ambitious growth plans rather than fresh start-ups. Finance partners will be looking for evidence of years of growth, sustainable operating profits and a robust, forward-looking business plan.

This form of financing is often used in management buyouts and commonly in property development where lenders are investing with an eye on the mid to long-term. However, increasingly, mezzanine funds are lending to SMEs.

Mezzanine financing is often used to complement other forms of funding on projects. A common scenario is as a kind of ‘top-up’ loan following the agreement of a majority investment from other senior lenders.

The mezzanine finance sits beneath the senior loan in the hierarchy of a company’s capital structure. Therefore, the mezzanine debt is only repaid once the senior debt obligations have been met.

The future ownership of your company could rely on the success of your growth plan. If your revenues stall and you struggle with repayments, you may end up surrendering some control and ownership of your company to your mezzanine lender as debt is converted to equity.

As mezzanine financing is quite a complex arrangement it can therefore take a while to arrange. It may take several weeks or even several months. This kind of financing is normally applied to complement a major growth project, so extended arrangements should be factored into broader business and financial planning.

Joint Venture Property Development

In the property market, a joint venture is a temporary but formalised partnership of builders, finance houses and developers, which contract with each other for a particular development project, such as a housing estate, often through the creation of a temporary subsidiary company called a Special Purpose Vehicle (SPV).

If you have a project but don’t have the funds to acquire or develop it a JV partnership can fund 100% of all associated costs and on completion and sale of the development the profits are divided.

The partnership supports throughout the development with site progress, meetings and monthly valuations, before signing off on practical completion then splitting the profits.

The benefits of joint venture property development finance are as follows:

  • Land and development costs are 100% fully funded
  • All legal details and pre/post contract work are taken care of
  • Get a decision in just 48 hours
  • Typical deal can be completed in 28 days
  • Profits shared in favour of the developer
  • The process is simple, honest and honourable

Some of the basic criteria includes:

  • Be an experienced developer
  • Specifically developing multi-unit residential new builds or conversions
  • Have a project length no more than 24 months
  • Have full planning permission in place
  • GDV target of £1m up to £15m

First Time Developer Finance

Lenders are nervous about providing finances for borrowers who are just starting out in the industry as they see this as risky.

Lenders do not like risks - especially the risk that they will not be repaid. They will look very carefully at any project they are asked to fund with development finance and get an expert in the sector to assess the proposal and the property - and the developer.

There are many risks with any development project. The simplest will be cost overruns, usually due to extra repairs required. There can be problems with planning permission which turn a project that should take a month or two into a year-long battle with local authorities. There is also the danger that the completed project will not find a buyer, leaving a project standing earning nothing and profits never materialising to pay back the funding.

The lenders experts will look at all these risks presented by a project and price the loan accordingly. They will also look at the borrower.

If you have a long history of success with similar projects, have overcome the challenges they presented and turned a profit, the chances are that you will have an excellent chance of doing the same again. If this is your first foray into the world of development and your previous experience has been some DIY, they will have less confidence in your ability to deliver the profits you are aiming at but it is not impossible to receive the lending.

Development finance lenders will always assess each applicant’s project on its own merits, and will closely examine all aspects of a deal before making a decision.

They will look at factors such as the following:

  • Costings
  • Your experience
  • Your exit strategy

Senior Debt Development Finance

Senior Debt development finance is the conventional type of property development loan, where the lender takes a first charge over the site/ property being developer, and can fund up to 65% of the Gross Development Value, or 80% of project costs.

Senior Debt is the cheapest form of development finance, particularly where the borrower can inject a good amount of cash on day one, towards the land/ property.

Benefits of using senior debt development finance are as follows:

 

  • Typically up to 65% of GDV, or 80% of project costs
  • Arrangement fees from 1%
  • Interest rates from 4% per annum
  • Options with no Exit Fees
  • Up to 24 months, or longer by agreement
  • Minimum loan £50k, with no maximum loan size
  • Options with no Personal Guarantees.
  • Countrywide coverage
  • Valuation and Monitoring Surveyor (“MS) fees case by case.

Lending criteria of senior debt development finance are as follows:

 

  • First charge lending only
  • Greater development experience gives access to cheaper rates
  • Multi-unit schemes preferred, but single units can be considered.
  • Executive residences can be considered.
  • Adverse credit can be considered
  • Detailed planning consent must be granted
  • Residential, mixed use, commercial, student, care home, industrial etc all considered.
  • UK countrywide coverage

The following information is required:

  • Applicant company name & number.
  • Directors & significant shareholders CV’s or Biographies.
  • Full site/ property address.
  • Copy of the planning consent.
  • Financial Appraisal (can exclude finance costs) and Cash-Flow.
  • Detailed build costs.
  • Schedule of proposed Accommodation.
  • Details of the professional team (contractor, architect, structural engineer, CDM coordinator etc).
  • Procurement Method (For example, Design & Build or Construction Management?).
  • Any comparable sales information (or agent’s opinions) to support the proposed GDV.

Do you need some advice or help?

Don’t hesitate to get in touch

Our Address:

10 Milkstone Place, Rochdale, OL11 3TA

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Tel: 0800 0016 786
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Email Us:

advice@amalfinance.co.uk

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