How to Finance a Commercial Property

Sourcing funding solutions for your commercial property purchases might seem like a daunting and complex task, but at Ping Finance, we aim to streamline the process. When you’re looking to purchase a premises that your business trades from, add a buy-to-let property to your portfolio or to start your next development project, our panel of lenders can help you out with the funding you need.

From high street banks to specialist independent lenders, the property finance market is rife with a range of funding options. Three of these options include bridging finance, development finance and commercial mortgages. These are all viable financial options for funding a commercial property, and we can put you in contact with the right lenders that offer these types of funding solutions for your business.

Here we’re going to outline these three funding options, including what they entail and why they could be a great choice for your business.

Bridging Finance

Bridging finance is used to meet an imminent financial need until a longer-term solution can be implemented. They are typically used to ‘bridge a gap’ in finances until alternative finances can be found, such as the result of a sale that has not yet been finalised.

A bridging loan allows a business to acquire a property with just a cash or equity contribution equating to as low as 20% of the property value or purchase price. The typical advance is 70% of the value or purchase price of a property – and this includes roll-up on interest and fees over the agreed loan term. When used as a down payment on a new property, the proceeds can be used to pay off the bridge loan once the old property sells.

Bridging loans are not just used to finance property purchases and can be incredibly helpful in general financial emergencies. Here are some of the reasons bridging finance might be used:

  • Un-mortgageable properties – on properties that the buyer is planning to renovate where a mortgage would not be approved due to its dilapidated state.
  • Securing a property – to help people purchase properties before selling their old one.
  • Auction – for people purchasing property at auction.
  • Cash flow cover – for borrowers needing a quick injection of cash.
  • Renovation – for those wanting to renovate a property or develop a piece of land.
  • Raising capital – secured against land or property so businesses can raise the sums of money needed.
  • Business obligations – for those needing funds to meet their business obligations.

Bridging loans are often on a short-term basis rather than a longer one that you would get from a more traditional loan. Whilst interest rates will typically be higher, you are paying back interest for a much shorter timeframe, meaning that you will likely end up paying back less money overall in the form of interest.

Bridging finance can also be done very speedily, meaning that the money can be in the borrower’s account in a matter of days, as opposed to waiting months for a mortgage. They are also incredibly flexible and can often be paid back before the repayment date, so you can save on interest repayments.

These kinds of loans do, however, have penalties for failing to meet repayment deadlines. You can take a look at our bridging finance page and bridge finance post for more information.

Commercial Mortgages

Taking on a commercial mortgage might seem like a daunting task, but it can be a smart move for your business. Whether it’s to reduce rental costs by purchasing your trading premises; upsizing to a more suitable space or wanting to invest in buy-to-let, a commercial mortgage is a great way to facilitate this process.

Similar to a residential mortgage, there are different types of commercial mortgages that are used for different purposes, but most commonly they are for facilitating the purchase of a property that you are either planning to use or rent out to others. The two most common types of commercial mortgages in the UK are owner occupied mortgages and commercial investment mortgages.

Owner occupied mortgages – These mortgages help fund the purchase of a property that you are planning to use for your own business. They can be used to purchase a new premises or one that you are currently renting.

Commercial investment mortgages – For properties you are planning to purchase but won’t be using yourself, a commercial investment mortgage is likely more suitable. These are essentially buy-to-let mortgages for the commercial sector, where you will be acting as the landlord rather than the occupier.

The main advantage of a commercial mortgage is the control you will have over your finances as you will not be paying rent to someone else. With landlords able to change rent rates at their will, mortgage rates are regulated to protect your business. Fixed rates can be acquired through the likes of services like Ping Finance, allowing your repayments to remain static for an agreed period. You can take a look at our commercial mortgage page for more information.

Development Finance

Property development finance is a type of short-term loan designed with property developers and construction firms in mind. These loans are used to fund the likes of new builds, conversions and renovations, compared to bridging loans which give upfront cash to make the initial purchase on a property, or for property refurbishment.

Rather than taking out a lump of cash, a development loan lender works with you to budget your lending as the project progresses. This is a valuable resource to help keep your project within a tight budget, ensuring the capital keeps the project moving forward. Due to the high risk to the lender, to obtain this kind of loan you need to provide substantial evidence of your ability to see the project through to completion. You do not need to have a history in property development to be accepted, but this would certainly attract more potential lenders.

Before funding is given, lenders will want evidence of the following:

  • The value of the property or land.
  • The predicted end value of the project (gross development value).
  • The building and renovation costs.
  • A schedule of work and a cash flow forecast.
  • A portfolio of experience in development (if you have one).
  • A copy of planning permissions.
  • Details of any professionals involved in the project.
  • An exit strategy.

You can typically borrow up to 70% of the gross development value of the project. Due to the risk, loans are typically used on a short to mid-term basis until the property qualifies for a standard mortgage or until the development is sold. You can look at our property development finance page or development finance post for more information.

Secure Finance for a Commercial Property with Ping Finance

With so many types of loans and lenders available to you on the financial market, it’s important that your business gets the best possible deal. Our expert advisors at Ping Finance will quickly and accurately match your circumstances with lenders who have a proven track record in delivering these types of loans.

All of our services are completely free of charge with no obligation attached, so get a great deal on your next business loan by filling out our online enquiry form. For a commercial finance broker in Manchester or a commercial finance Broker in Bolton, contact Ping Finance today.

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