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Bridging Finance, not just for property.

 

Bridging Finance is primarily seen as a property related bit of finance because it can be used to secure against property. That is one of the easiest ways of getting it, just on the basis that property gives the bridging lender a relatively understandable exit – in terms of how they are going to be repaid.

Bridging Finance can be used for business purposes as well. If you have a shortfall of cash but you know that you have got cash coming in in the future. Bridging loans are typically six to twelve months, though they can go up to twenty-four months, so it can be used for different purposes, if there is an exit strategy.

Now, the one thing to bear in mind with Bridging Finance is that whilst it primarily doesn’t need to be serviced, so you don’t need to make payments against it, what happens is that the interest that is building up is that it gets added up and then taken away from the original loan value that you have secured.

What this means is that your day-one draw down is actually less than the value of the loan, to the tune of the fees and the interest, so you really need to bear that in mind when you are arranging your finance.

The original main loan value will be based on the loan-to-value, but the actual amount of money that you will have in your pocket will be different to that, unless you can prove through your income that you are able to service the interest on a monthly basis, which then releases all of that interest from the loan into your day-one draw down. This allows you more money upfront, but you must make a monthly payment. The lender will require proof of how you are going to do that.

There are still lots lenders out there, and more lenders are coming into the market.

Coronavirus has had a little bit of an impact, in terms of some lenders have withdrawn from the market, but there are still plenty out there.

If Bridging Finance is something you are looking for, or considering, then it is still very much on the table. If you need Bridging Finance or want to discuss your options, fill out the contact us form on this website and we will be in touch.

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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.