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How far in advance should you plan your commercial finance solution?

Today I’m going to talk about the timescales involved for Tier 1, Tier 2, and Tier 3 commercial lending and commercial mortgages.

In terms of putting a case together, getting it submitted, getting a decision in principle, getting it credit backed (underwritten), and then the time it takes to go through the legal process in order to draw down the funds.

Timescales for commercial lending

The purpose of this is really just to give you an idea, if you’re looking to buy a commercial property, either as an investment, or for owner operation, or even a trading business, then these are the timescales that you are going to be looking at.

I’m going to break it down into tier 1, tier 2, and tier 3. This is slightly different to some other areas where tier 1 is actually going to be a Business Development Manager (BDM) that you’re talking to, so you are actually talking to a person, whereas tier 2 and 3 tend to be more portal based, particularly tier 2 – where it is either meeting criteria, or it isn’t. Tier 3 depends on the lender, but some lenders will be BDM and some will be portal.

 

So, on to the timescales. For a decision in principle for a tier 1 loan, using a BDM, you will most likely be looking at one to two days. For a tier 2, even though you would apply through a portal, you would still be looking at one to two days. If you were processing a tier 3 loan, you could have a decision in principle back in as little as four hours, though this could go up to two days. So, for all three tiers, it is best to err on the side of caution and plan for the process to take up to two days.

If you then want to get that decision in principle credit backed, because you are happy with the deal that’s offered, then that process can take up to 4-5 days, depending on how quickly an evaluation can happen, and then from evaluation and credit backing, the timescale to actually draw down the funds varies.

For tier 1, you can look at drawdown taking ten to twelve weeks, tier 2 can be eight to twelve weeks and for tier 3, you can expect it to take eight to ten weeks.

If you are thinking of going through this process, ideally, you should attempt to plan anywhere between three and a half to four months ahead of the time that you want the process to be completed. There is, of course, an option if you want to do it quicker.

You can look at Bridging Finance (which will be the topic of next week’s blog), so if you are unable to secure it within the time scale of the three and a half to four months, as long as the ability to refinance was there, you would be able to secure the asset quickly.

A lender for a bridge would want to know what your exit strategy for the finance was, and your exit would be to refinance. As long as you are able to show that you are able to refinance, then the bridge should be forthcoming.

If you want to discuss these or other business finance options, get in touch by filling out the contact form on this website and we can work out what solutions will fit your needs.

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The land owner, developer and financier relationship

Hi, it’s Graeme from Playfair Finance here.

Are you a land owner, a developer, or have some money put aside that you want to do something with but are uncertain of what to do with it? If you fit into any of those categories, then read on.

 

In the course of my work, I come across projects where people have got a bit of land and they’re looking for a developer. Or, I come across developers who are looking for a bit of land, so I can be a bit of a ‘dating agency’.

One of the things I certainly would like to do is talk to people who may be private individuals, or have got funds that they wish to invest in this type of arrangement.

Obviously, I can put you in touch with people and make your money turn into more money.

There are a lot of people getting into that market which kind of makes a bit of a mockery, sometimes, of the broker who says ‘I’m whole of market’. We really can only say that you are ‘representative of market’ because there are so many new lenders coming into the market nowadays, it’s hard to keep track of them all.

But it gives you plenty of opportunity for developers to increase the housing stock, which is effectively what I’m here for. So if that sounds of interest, then please get in touch by filling out the contact form on this website.

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Understanding Commercial Property Mortgages

I’m currently working on a commercial mortgage for a client. I thought it appropriate to go through some points that were raised in our recent discussion about commercial mortgages.

So, most commercial mortgages are going through Tier 1. This is High Street lenders effectively. You can get fifteen-year terms if you’re doing it as an investment, and 20 years if you’re actually owner-occupier, but High Street banks tend to be capital and repayment.

The loan to values can be eighty percent for owner occupier, or 100 percent if you are looking to buy a portfolio which is tenanted. So if it can be shown that it’s genuinely under market value then effectively you may be able to do it without putting any money in. In saying this, a lot of lenders prefer to see some ‘skin in the game’.

Tier 2 tends to become a little bit more attractive. This is on the basis of a lower cost to repay because they will offer either a capital repayment, part and part, or interest-only facility. So, whilst they will potentially be slightly higher in terms of their interest rate, it may suit the strategy that you are operating. Because of that, tier 2 might be worth looking at.

Tier 3. There are less that get there, let us put it that way. But it can be used if potentially you have some adverse credit. So, if you have adverse credit, not within the last 12 months, but 12 months or older that can be explained away then tier 3 may well look to support you on that.

Now, commercial mortgage is obviously for property, but you can also use it for buying a trading business. So, there are two valuations that you get when you are buying a trading business that operates from a property, and one of them is called a market value and the other is market value one, so MV1.

MV1 tends to include an element of goodwill, fixtures and fittings, and things like that, so you can borrow slightly more if you are going to buy a business that is operating. Do bear in mind that if you are going to be an owner operator your maximum term is going to be 20 years. Also, if you are going to the High Street, it’s capital and repayment that you’ll be looking at.

If you are look to buy a commercial property, or even a trading business and you think we can help, please get in touch and we’ll be happy to have a conversation.

 

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Bridging Finance and the impact of Coronavirus

We provide services to businesses who need assistance with all types of finance, including Bridging Finance.

Hi, my name is Graeme Shevas.

I help businesses who need assistance with Bridging Finance and I wanted to give an update on the Bridging Finance Market as a result of Coronavirus and any impacts that it may have had. The first thing to note, really, is that there are still plenty of bridging lenders out there willing to lend, but there have been a couple of impacts.

The main impact really is that some lenders have been withdrawing from the market, and other lenders are actually finding that the funds that they have available to lend are reduced. This is as a result of people who are coming to the end of a bridge and not being able to refinance, due to the current situation. They are finding that the bridges are lasting a little bit longer, so the funds aren’t coming back into the coffers in order to be able to loan them back out again. There are some lenders who have not completed on deals, or who have had deals that were not completed and have now withdrawn the offer of finance. So, it’s a bit of a mixed bag.

The main thing to note, really, is that the amount of money that is loaned out on a bridge has actually reduced as a result of the value decreasing. So, if you’re looking at a property transaction for the bridge and the loan-to-value against which it will be secured is probably, on average, about 10 percent down, largely to do with the valuations, in terms of getting a desktop valuation done and reducing the amount of risk involved in that.

So, the bottom line is that they are still available, there are lots of lenders, and if you have a funding gap and it wasn’t necessarily property related, maybe it was to do with business, as long as you can prove an exit, (i.e. a way of actually repaying it in a period of time, so maybe you’ve got other funds coming in our you’re waiting for some finance against a commercial property or you’re trying to sell something and the money has not come in yet but you desperately need it now) it’s still available.

Bridging Finance is a flexible bit of finance which will suit many needs. If this is something that is of interest to you or you want to discuss it further, you can reach me on 07776 257 342, email graeme@playfairfinance.co.uk or fill out the ‘Contact Us’ section on this website.

For more interesting hints and tips, you can also visit our YouTube channel at https://www.youtube.com/channel/UCbvTGclIvFBNhr1GwC3rFSQ/videos