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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Coronavirus has had a little bit of an impact, in terms of some lenders have withdrawn from the market, but there are still plenty out there.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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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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Invoice Finance facilities for the Scottish Transport and Haulage industry

Hi, my name is Graeme Shevas and I help Scottish Transport and Haulage companies to improve their cash flow by releasing monies from their sales invoices.

I’ve been in business for over 30 years and the question I’m getting asked most often at the moment is ‘How do I improve my cash flow now that my customers are finding it harder to pay their bills?’

So, here is my best advice. If you are in the Scottish business to business sector you will be raising invoices for your goods or services and you’ll probably be waiting 45-60 days to be paid for those invoices. As a result of the Coronavirus you may well have seen a downturn in trade. It’s not always the case with transport but certain sectors and companies certainly have, so
that will mean that you’re raising less invoices and as a result, the amount of money that you will have coming into your bank account over the next few months will be significantly reduced.

Now, you may well have enough money to get you through to when you return to normal levels of trade again, but when you get back to normal levels of trade you will have dwindled away your cash reserves and you will still have to wait 45 to 60 days to get paid for your new sales invoices.

So you’re going to have a funding gap, potentially, so how do you plug that funding gap?

This is where an Invoice Finance facility will be useful because if you have an Invoice Finance facility, as soon as you raise a sales invoice you can receive 85-90 percent of the value of that sales invoice into your bank account within 24 hours.

Now, with the Coronavirus Business Interruption Loan Scheme you may well qualify for a guarantee to be provided, by the government, to the lender in order to put that facility into place.

This is something that we specialise in and my role is to make sure that you do not have to go to lots of different providers in order to find the best deal.

You apply solely to us and then we then take your application to the market and find the most suitable lender based on your sector, your turnover, and how your business has been trading. Once we find the most suitable lender, we then get
the best deal possible for you.

The best part of it is that this service does not actually cost you anything. The fee that we receive for doing this is paid for by the lender.

So, if you are a Scottish Transport or Haulage company and you are wanting to put into place an Invoice Financing facility then please fill out the Contact Us’ page on this website and we will work out what we can do to improve your cashflow.

 

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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