Securing £1 Million Property Finance for a Venue
Since the rules about venues were relaxed and it became possible to get married in places other than churches and registry offices, weddings have become a multi-million pound industry. Catering, cars and accommodation are all major money spinners - but one of the most rewarding business models of all is to own a venue which is capable of hosting the entire event, from the ceremony to the evening reception and even overnight accommodation.
A memorable wedding venue can be booked years in advance and command a large revenue for each event. However, high costs may be involved both to acquire and operate the type of venue which operates at the top of the sector
At Rangewell we recently provided £1,005,000 funding when a wedding venue purchase hit problems. Providing the large scale funding required at short notice was vital not only to ensure the future of the business - but to avoid the venue itself being repossessed.
Our client had acquired a small castle close to the border between Scotland and England. Its condition was poor, but he had been able to use it as the basis of a wedding business, first as a tenant, and later by acquiring it with a bridging loan.
What is a bridging loan?
A business Bridging Loan is a short-term loan secured against property. The property can be residential, or commercial, and the loan is called a Bridging Loan because it is designed to bridge a short-term funding gap. Bridging Loans are usually repaid quickly, either by the sale of the property or by another finance product designed for the long-term, such as a mortgage.
There are two main reasons to use a bridging loan. The first is when funds to buy a property must be provided fast, such as when a property is bought at auction. Bridging loans can be provided in days, rather than the months which may be required with a mortgage.
The second reason to use a bridging loan is that they can be used to secure property which because of poor condition is not suitable for a mortgage.
The loan can run up to a maximum of 12 months and can be arranged fast. Lenders will carry out detailed checks and apply conservative lending criteria, but are able to make rapid decisions because they can work without the bureaucracy that slows down many traditional lenders. This means that funding can be agreed within a matter of hours, and funds released in as little as 72 hours.
However, costs for bridging loans are always high. Rates can range from 0.7-1.5% per month, with even higher rates charged with for more difficult propositions. There will also be fees, including an arrangement fee which can be 2% of the total loan amount, an exit fee which can equal one month’s interest and surveyors’ and legal fees.
If the loan runs over the agreed term there will also be substantial penalty fees - or the property may be repossessed.
In some cases, all these fees and the growing interest can be rolled up into the loan principal, and all settled with a single repayment. Most borrowers aim to pay bridging loans off as soon as possible, either by selling the property, or by transferring the borrowing to a mortgage which is more suitable for the long term.
In the case of our client, he had taken out a bridging loan for a maximum 12 month term, which he hoped would provide him with enough time to undertake repairs necessary to make the building suitable for a commercial mortgage.
He was committed to paying 1% per month on £1,000,000 lent.
However, although his wedding business had been busy, he had not been able to do the necessary work - which involved structural repairs as well as cosmetic renovations. Initially, he had not been worried by his lack of progress. His broker had assured him that it would be possible to simply find another bridging loan - and even claimed to have arranged an offer in principle for another render.
Unfortunately, his broker had overestimated his own abilities, and the offer never materialised.
With just 10 days to go until the loan was due to end, the owner realised that his property would be repossessed and that he would lose both it and his business.
He approached Rangewell to help.
We saw that we had to act quickly, and approached a specialist bridging company that works in the commercial sector. They looked at the client's books and saw that his business was profitable, and surveyed the castle to assess the work involved.
As specialists, they understood that the work required was relatively minor.
They also valued the property as worth £1,900,000 with an operating business. They were happy to advance £1,050,000 to pay off the old bridging loan - which had grown because of the interest payments and fees involved - and do so at 0.9%.
Our client was able to keep his property and keep his business afloat - and has embarked on a programme of work which will allow him to apply for a commercial mortgage
Do you need large scale finance – and do you need it fast? Simply call us at Rangewell on 020 3637 4150 - or email contact@Rangewell.com. Our service is free.