Bridging Finance for a commercial propertyPublished on 4th December 2019 2019-12-04T12:00:00+00:00 - Last update on 17th March 2020 2020-03-17T16:12:37+00:00
Many businesses have wealth tied up in their premises - wealth that could be used to fund expansion or simply to fund business operations. We can help you find solutions to release that wealth - which can provide a cost-effective source of the funding you need.
We were recently asked for help by a property owner who was based overseas - but who had substantial business interests in the UK.
This can be a difficult situation for funding. Living in the UK and being under UK law is usually a prerequisite for business lenders in order to consider an application. However, we knew that certain types of business funding might still be possible.
Our client owned a 7-storey office block in an inner London borough. He had acquired it as part of another property deal, and was keen to use it as a source of profit.
He first looked at the possibility of letting it out as a whole, but soon found that the office market was less than buoyant and that there were no organisations in need of a large headquarters building in the area.
However, he recognised that there might be some scope to let the building out in parts as a starter hub for small and growing businesses. He looked at the costs involved, and saw that there would be substantial expense required to fit out the building - which was little more than a shell.
He received some quotes from organisations which could offer a basic fitting-out with carpets and shared facilities, and which could also offer desks and seating as required.
The most competitive quote he could secure was for £400,000. He concluded that this would be reasonable for the kind of return he had projected, and looked at raising the figure as a loan.
However, he soon found that because he was based outside the UK most lenders were unable to offer him with a loan.
He called us at Rangewell to provide a solution.
Using a Bridging Loan
We saw the answer would be Property Finance secured on the property itself. We also saw that, although it might be possible to arrange a Commercial Mortgage, the long timescales involved would result in high cost, and a Bridging Loan might offer a better alternative.
A Bridging Loan is so-called because it can bridge a short-term funding gap. Bridging Loans are short-term loans secured on property and are usually repaid quickly, either by the sale of the property or paid off with another finance product designed for the long-term, such as a mortgage.
Their main use is to offer short-term finance to fund business and property purchases - they can be arranged much more quickly than other forms of property funding such as Commercial Mortgages. However, there is no restriction on how funds can be used. So if you are faced with a sudden unexpected cost, or if you need to raise large-scale finance to take advantage of an opportunity - a Bridging Loan secured on a business or residential property which you already own could provide the funds quickly.
Lenders want full details of the directors' personal finances and will expect to see a good credit history.
They will also want to confirm the current value of the property. The condition and type of the premises will be important, as will the current market conditions. Versatile properties such as office accommodation may be particularly attractive to some lenders.
Because the funding is secured on a UK property asset, lenders may be prepared to overlook the usual requirement for UK residency when considering a loan.
Our clients' office property was valued at £2 million and he was happy to use it as the security for a Bridging Loan. We approached a specialist lender who was able to provide the necessary funding.
Most types of business finance require monthly loan repayments. These may be made up of both interest and a proportion of the capital, or of interest only.
However, there is an alternative with a Bridging Loan, where all interest can be added to the principle. This can be repaid at the end of the loan period, when the property would be suitable for a Commercial Mortgage. This would mean that there were no interim payments to be made.
We set up a deal that offered an additional £400,000 for the client - and allowed them to raise the funds they needed at 1% per month - or 12% per year.
The funding Rangewell organised:
Bridging Loan of £400,000 over 12 months
Interest at 12% PA to be rolled up
Total repayable on exit from arrangement: £448,000
Our client was able to draw down the funds he needed within a week, and the fit-out work was authorised. The office block has now achieved a good level of occupancy and is recognised as providing an important facility for local enterprises.
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