If you’re a business owner and want to purchase new premises, be it a new warehouse or office, there are a range of property finance products available for you to choose from.
The most common form of property finance are commercial mortgages, which are available to most businesses, whether you’re a sole trader or limited company.
You will normally be able to get up 75% of the purchase cost funded with a commercial mortgage, though it’s usually considered uneconomic to borrow less than £50,000 on this basis due to the legal and administrative costs, and you will usually get repayment term lengths of up to 30 years.
The affordability of this sort of finance is based on your profitability as a business and most commercial funders would prefer it if you have some form of property investment experience.
What if I’m building my own premises?
Usually coming in the form of a short-term loan, there is property development finance that will allow you to borrow up to 70% of the gross development value (GDV) for up to 24 months if you’re building your own.
Depending on the size of the project, there are a number of different property development finance options available.
If it’s a heavy development or a ‘ground-up’ development, you can get development finance to cover both the purchase of the land and the cost of the building itself.
However, if it’s only a small development or refurbishment of an existing property, then a bridging loan may be more suitable for your business.
A bridging loan?
This is a type of finance that is perfect if you need to fund the purchase of property in a short period of time, when a commercial mortgage may not be applicable.
Used in the same way for both residential and commercial, a bridging loan can be used to cover a gap in funding when it needs filling quickly.
An important factor when it comes to bridging finance for property is that, usually, the property has to be over 40% commercial use.
For example, if you purchased a unit with a residential property above it, the value of the unit would need to make up more than 40% of the total value of the entire plot.
You will also need a practical exit strategy, which usually comes in the form of a commercial mortgage.
What if I’ve bought the premises at an auction?
Buying at auction is a perfectly steadfast way for you to purchase a property for below-market value.
However, when buying from auction, you will need to pay a deposit on the day, and the remaining balance up to 28 days later.
This means that you don’t have very much time when compared to the more traditional routes to buying property, even if you have a large amount of equity already in your portfolio.
Whilst auction finance is generally flexible as a product in terms of affordability, to stand the best chance of getting the property that you want, it would benefit you to get an agreement in principle before going to the auction.
Property auction finance allows you to pre-arrange the funding before the auction, putting you in a position where you know how much you can afford before the gavel hits rather than worrying about whether you have spent too much.
You will be given a provisional acceptance by a funder if your proposal is accepted which will give you an amount that you will be able to finance.
Once you’ve found a suitable property at auction, if you have your auction finance in place, the funder will pay your remaining balance and you will repay them back over a set period of time.
These are just short snapshots of just a number of the various arms and types of commercial property finance. What sort of property that you’re looking at financing and what your business situation is will determine which type of property finance is most suited to you.
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