When it comes to taking out a finance package or loan for property improvement or any property related project, the financial services market in the UK have excess of options available.
Nonetheless, whilst you can keep all the options open, it still remains crucial to make sure that you’re taking out the right type of property funds, which best suits, you and your business’s needs. Likewise, you also need to comprehend what every type of finance has to offer and when and why you need to use them.
The financial service market has some “specialist” types of finances to offer as well. These can be pertinent to property and other property related purchases. Say for instance, unlike high street finance providers, agricultural finance providers offer a more bespoke package, because of the mixed composition of land included, especially when it comes to estates and farms.
Though you’re a developer or property investor, taking out the right offering to fund the development could be the disparity between hours of work and thousands of pounds, so as to submit all the pertinent applications and documentation.
No matter which financial product you opt for, it’s of paramount importance that you comprehend the product completely from top to bottom. Here are some of the property finance products for businesses:
- Bridging Finance
Bridging finance is considered as a short term finance package, which is offered in circumstances wherein a business immediately requires a secured loan. For instance, in the case of people looking to complete the purchase of a property, but are waiting for the sale of another property to take place in order to finance their purchase.
So yes, you can say that a bridging loan literally “bridges the gap” between the above two- purchase of new possessions and sale of primary property.
The provider offering you with bridging finance is more likely to require evidence that the credit taken out is indeed a short-term loan. Not only this, but they’d also like to be assured that the possession employed to fund the entire transaction is being prepared for sale or re-financing in the near future.
Not to mention, it’s crucial to bear in mind that bridging finance is secured against your possession. Put simply, it means that if you fail to repay your provider then perhaps you’ll end up losing your possession. Moreover, the rate of interest applied on these loans is generally higher when compared to “traditional loans”.
- Cashflow Finance
Cashflow finance gives businesses the liberty to take a loan against the equivalent value of all invoices that are unpaid. By availing this, a business can receive around 85% of the face value of all approved invoices, within 24 hours of an invoice being issued.
Later on, they receive the outstanding of their invoice, (minus the charges applicable for invoice funding service) when the customer or supplier pays the bill.
- Auction Finance
This finance is similar to that of bridging finance- that is even auction finance is a short-term loan solution for you. Likewise, the way it’s with bridging finance; when you take out auction finance, the provider would want to see evidence that there’s a clear exit approach in place.
In simple terms, they’d want to know that funding is evidently coming from somewhere else, such as by selling possessions, re-financing a property or otherwise.
One of the major reasons for choosing this finance is, when you’re purchasing a property at some auction, it’ll typically have to be finished within at least 28 days.
This simply means that, even if you’re entitled to a bank or high-street provider’s loan, there won’t be sufficient time to apply, be checked and then approved for the loan. You’ll also be given a maximum loan term for it, say for example 6 or 12 months-within this period of time you’ll have to pay off the entire loan amount.
Auction finance packages also come in a wide range, at times with the borrowing amount surpassing the £1 million mark.
- Borrowing against Assets
It is possible to loan cash against a wide range of assets, which usually includes inventory, equipment or property. The amount that you can borrow mostly depends on the current valuation of that particular asset. However, this could perhaps turn out to be a great way of increasing money for investment or working capital.
If you are thinking of purchasing or remortgaging your business premises, then you may even consider approaching a broker who specialises in commercial finance. They can offer you independent guidance; educate you on all the options that you could pursue, thereby dealing with the provider directly while representing your interests.
- Self-build Finance
This finance is a more specialised type of loan, which differs from other forms of property finances. But, one of the major differences between this and other types of short-term property finance say for instance bridging loan; is that self-build finances will obviously be required for a longer period of time.
Unlike other types of property finances, which are often finished swiftly and in one go, a self-build finance would mean releasing the funds in several stages as the possession in question would be built and developed.
The major reason behind cash not being unlocked in one go is because it decreases the risk that’s involved. For the provider it simply means that they’re not at the risk of losing any part of the loan amount, whereas for the borrower it gives them the liberty to decrease their amount of debt, which they’ll have to pay off in several stages.
Usually, the stage in which the money is being released is very much in conjunction with the stages involved in a self-build project. Say for instance, cash will be unlocked to the borrower once when they purchase the land, the next stage might be when the foundation is being laid and the last stage could be when the entire property is built up.
- Business Overdrafts and Credit Cards
A business might use a credit card or overdraft to assist the business when the cash level is low or when the business is more seasonal. They could work if you need an additional source of cash to dive into during quieter times, so that it’s easy for you to keep trading until the money starts coming in once again.
There are several credit cards, which are another way of offering you with a short-term credit. This way, you can manage and regulate staff spending with complete ease.
- Development Finance
Development finance is a general term that’s used for basically all types of financing, which is used to help fund any development, be it residential or commercial. It also covers all forms of mortgages, including bridging loans.
Typically, this finance is for approximately 60% to 70% of the development’s present market price and not the value when any of the work on it is finished. It’s generally funded through trance drawdown, meaning one can draw cash out of their mortgage in order to pay for the work.
This type of finance can be utilised for office renovation, converting a residential area into a commercial property or to simply fund a planning application a specific piece of property or land.
With the help of this finance, one can cover everything right from a single unit scheme to larger multi-unit projects. Often, development finance is used for build-to-let projects. It’s also helpful to cover sales period funding, offering business revenue during the period between finishing the development and letting or selling it.
- Commercial Mortgage
Similar to basic first charge mortgage, this particular loan is secured against a possession. But, a commercial mortgage is secured against commercial buildings, such as factories, shops or offices and they cannot be protected against a residential property.
These mortgages are used to purchase business buildings or to purchase a business outright. The lending criterion is based on the business’s capability to make timely mortgage repayments.
With basic first change mortgage, providers take a look at your personal earnings in order to verify whether you can afford the mortgage payment. But, with commercial mortgages, providers would instead take a look at the business’s earnings and assess their ability to repay the amount.
Put simply, it means that providers would perhaps check the business’s previous accounts, present performance and forecasted future earnings. So, when applying for it, one may be asked to provide a business plan along with their detailed accounts.
If someone’s starting their own new business, then providers may need a large deposit. Commercial mortgage deposit is typically around 50% in comparison to the 10%-20% expected whilst applying for ‘basic mortgage’.
For already existing businesses, the loan to value (LTV) rate could be higher, but it varies on the basis of the type of business.
The only disparity between business loan and commercial mortgage is-business loans aren’t secured against the property. Similar to basic mortgage, commercial mortgage is secured against a property, meaning the possession could be at risk, especially if the repayments are not made on time.
The high level of administration linked with commercial mortgage could also mean that most of the providers have a minimum loan amount of £75,000.
Other Things to be Considered
Besides, which finance package would best suit your business for property development, build or purchase; it’s of paramount importance that you’re taking numerous other considerations into account in order to ensure that everything is covered.
- Regulated Providers
Double check if the provider or lender that you’ll be using for the finance package required is covered and regulated by the Financial Conduct Authority (FCA) along with other regulators. This is just to make sure that you’re protected from foul-play, such as being mis-sold PPI on the loan you take out. Payment Protection Insurance (PPI) is one of the biggest banking scandals in the UK, which is usually applied on credit cards and loans. So, before you take out any loan, ensure that you’re thoroughly going through the terms and conditions.
- Financial Circumstances
When it comes to taking out the best property finance, you need to ask yourself whether you can afford the loan and its repayment terms, and are you conscious about all the associated expenses and charges for the property development or purchase.
- Structural Considerations
Before you take out the loan, ensure that the property that is to be purchased has been assessed well by a qualified surveyor or assessor to make sure its structural integrity. Likewise, see if you’ve cautiously considered all the legal necessities for new builds like air tightness testing.