How To Finance Commercial Property

Commercial property finance can be complex and difficult to understand with huge variations in product depending on your need. Here we present you with some of the more common commercial property finance products available on the market.

We also give you a summary of some financing options you may wish to consider if you want to develop your commercial premises.

Common Commercial Financing Options

Commercial mortgages

These are available to limited companies, sole traders and more. Lenders will usually fund up to 75% of the cost of the property with terms of up to 30 years.

Mortgages are typically secured against a first charge and affordability is based on the profitability of your business, and its capacity to make the monthly payments.

Portfolio finance

This is a long-term business loan that’s offered to property investors who have several rental properties and are looking to fine-tune their investment and to make it work harder.

The loan allows investors to consolidate and simplify borrowing into one loan and serviceability of it is based on rental income. The borrowed money can be used to purchase further property and expand the portfolio, to develop existing properties and increase their value, or release the equity within the portfolio.

Because of the size of the typical portfolio finance arrangement, you can benefit from more competitive mortgage rates than if you were to borrow against a single property.

Auction finance

Experienced property developers and landlords will principally benefit from this unique way of arranging funding in advance of a property auction.

It’s another term for bridging or short-term finance and is used to purchase properties at auction because it can be arranged extremely quickly and fits neatly into the purchasing timescales of the auction house.

Pretty much any residential, commercial or mixed-use property can be purchased through an auction loan. It essentially allows you to know the property value and type you can finance before you enter the auction room.

Mezzanine finance

This is type of finance combines elements of debt financing and equity investment and is secured against the property.

It is one of the highest-risk forms of debt, which means that it also offers some of the highest returns when compared to other debt types. Mezzanine finance often helps property developers decrease their cash flow requirement, permitting them to finance projects which would normally require a greater capital share.

Bridging finance

Bridging finance is a short-term finance solution often favoured by property developers and investors, which provides a quick way to finance the purchase of a property.

The lender will take a first charge on your property and will seek an exit once the loan has come to term.

Financing Options For Developing Commercial Premises

Developing a commercial property can be crucial to making a profit.

If you don’t have funding in place but want to develop your commercial premises then there are several funding options, specifically for the development and improvement of propertiesoptions that may be more suitable for you. Here we outline what they are and what they involve.

Development finance

This describes all nature of finance that is used to fund renovationsof a new building project, or refurbishment of an existing property. The amount borrowed will depend on several factors including anticipated build costs and gross development value (GDV) of the finished project.

Lenders do not tend to lend 100% of the property’s value. This means that if the work to be carried out is greater than the value of the property, the borrower will have to make up the amount. Lenders will send a valuer to and evaluate the property and its potential before money is loaned.

Refurbishment finance

Property refurbishment is a popular method of making profit from property. In normal market conditions, improving and upgrading properties in a variety of ways including extensions, conversions and full-scale interior overhauls can add as much as 20% to the resale value of a property.

Refurbishment loans are available to property investors, developers and landlords looking to upgrade a tired residential or mixed-use property before renting it out.

What will often dictate the exact type of development finance taken out is the length of time for the proposed works. As refurbishments tend to be much smaller projects and take a shorter time to complete than large scale property development, some lenders offer much more tailored loans.

This type of finance can increase the value or rental from an existing rental property. With properties in many parts of London enjoying growths in value, this can transpire to be a very sound investment.

As with development finance for larger projects, when it comes to renovation finance, lenders are very careful about what they lend and will not lend more than around 75% of the loan to value (LTV). This refers to the value of the loan to the asset purchased.

Self-build finance

This is a unique type of finance catering for the small number of investors that chose to build their own property from scratch.

The self-build loan is deemed to be a regulated mortgage contract, because the property in question tends to be the investors’ primary place of residence.

A major benefit is that the money borrowed is released in stages, reflecting the stages of the project itself. This reduces the risk to the lender of the borrower defaulting on the entirety of the loan, as smaller amounts are repaid in stages.

Current Opportunities

Current Opportunity

Café, Colchester

Century House North, Unit 5, Station Road, Colchester CO1 1RE
Gross Yield % 10
1615 sq ft
£ 250,000
Current Opportunity

Vacant Retail Unit, Wokingham

1 Beechey Place, Wokingham, UK View on map
2530 sq ft
£ 600,000

Boots Pharmacy, Gorleston-On-Sea

1 High St, Gorleston-on-Sea, Great Yarmouth, Norfolk NR31 0PB, UK View on map
3700 sq ft
Call for price
1275 sq ft
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Savers, Chesham

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6902 sq ft

Restaurant & 2 Maisonette’s, Gerrards Cross

12-14 Oak End Way, Gerrards Cross, Buckinghamshire SL9 8BR, UK View on map
Gross Yield % 6.4
7011 sq ft
£ 1,200,000
Current Opportunity

Domino’s, Colchester

3 North Station Road, Colchester CO1 1RH, UK View on map
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3500 sq ft
£ 475,000
Current Opportunity

Swan Pub, Wimslow

2 Buckingham Rd, Winslow, Buckingham MK18 3DY, UK View on map
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2500 sq ft
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Sainsbury’s, Nuneaton

299 Queens Rd, Nuneaton CV11 5LZ, UK View on map
Gross Yield % 6
6569 sq ft
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Current Opportunity

Bathroom Shop & 8 Flats, Kenton

142-144 Kenton Rd, Harrow HA3 8AZ, UK View on map
8302 sq ft
£ 2,500,000