Securing £250,000 of Property Finance for a Social Club

By Richard Mitchell

Content writer

Last update: 8 November 20211 minute read

Securing £250,000 of Property Finance for a Social Club

Working men's clubs are a particular type of private social club first created in the 19th century in industrialised areas of the United Kingdom, particularly the North of England, the Midlands, Scotland and many parts of South Wales Valleys. Originally established to provide recreation and education for working men and their families, their numbers have declined since the 1950s, but they still provide a popular alternative to pubs in many traditional communities.

Like most licensed drinking establishments, working men’s clubs have experienced a downturn in recent years. As a result, lenders are very reluctant to provide funding to acquire them as a business. If a club is based in substantial premises in a good location it may be possible to raise funding with a commercial mortgage based on the value of the property - but with commercial activity depressed in many areas in the wake of Covid, even this may be particularly challenging at the present.

At Rangewell we were recently approached by an investor who wanted to acquire a long-established working mans club in an area of Liverpool where he already owned a number of residential buy to let properties.

“I have invested in the area for two reasons - firstly, because it currently provides opportunities for good returns on buy to let, thanks t the low price of houses - and secondly because the area may be on the up. There are clear signs of gentrification, and the prices are starting to creep up. When I heard that the working man's club was for sale by its owner who was retiring ,I saw that it would be a valuable addition to my property holdings. It is the heart of the community - and it should appreciate in value along with the rest of the area.”

His logic seemed clear and based on experience - but lenders were reluctant to support his views.

Their decision was based on the current depressed state of commercial property in the area - and the fact that all licensed businesses are experiencing difficult times. \it is a well known fact that many pubs have shut across the country. Many working mans clubs have done the same.

It meant that our client could not find a lender prepared to advance him the commercial mortgage he needed.

What is a commercial mortgage?

A Commercial Mortgage is one of the most common forms of finance used to buy a commercial property. Commercial Mortgages operate like residential mortgages, with a large loan secured on the property itself. However, unlike a residential mortgage, the rates and terms for a Commercial Mortgage are arranged on an individual basis. Lenders will look at your business, accounts and projections to ensure that it has a future and set interest rates based on the level of risk they believe it presents.

Commercial Mortgages can be used for all types of commercial property - and can be used to fund the purchase of properties with a business operating from them, such as a Working Man's club.

However, the combination of a depressed commercial sector in the area, and the fact that the business was licensed meant that no lenders would be interested in providing commercial mortgage finance.

What was the problem?

The high cost of property in the UK makes leverage essential for most investors, and a mortgage is a routine investment for most people.

Our client had property to provide additional security and could afford the usual commercial mortgage rates from his own income, but the refusal to lend seemed to be set in stone.

He asked us at Rangewell to provide an alternative.

We looked at the challenge, and saw that the purchase price was reasonable at £250,000. We also saw the income available from the club, and realised that a commercial mortgage might not be the only type of property funding to consider.

We started looking at bridging loans.

What are bridging loans?

A business Bridging Loan is a short-term loan secured against property.

The property can be residential or commercial, such as offices, factories or warehouses. The loan can be used to buy the property itself, or as funding for any other business purpose.

It’s 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.

Bridging Loans are often used to fund property purchases, but there is no restriction on how funds can be used. It is therefore possible to use the value of property as security for a loan which will buy the property itself, and any business that runs from it.

Large amounts are involved, and lenders offering Bridging Finance will carry out detailed checks and apply conservative lending criteria, but are able to make positive decisions because they can work without the bureaucracy that restricts many traditional lenders.

Short-term finance is always more expensive than long-term lending. Interest rates charged will vary, depending on your circumstances and your business, and the deal to be funded. Current rates can range from 0.7-1.5% per month, with even higher rates for more difficult propositions.

In addition, there may be a number of fees, including an arrangement fee which can be 2% of the 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.

How we used a Bridging arrangement for our client

We found a bridging lender who was able to help, and negotiated a bridging loan with 70% loan to value on the £250,000 property.

We were able to secure the funding for two years, at 0.95 % per month.

This allowed him to become the owner of the property, and act as the landlord to the club. Rent from the club would cover his monthly loan repayments, and offer him a small profit.

At the end of the two year period, he anticipates that the commercial sector will have picked up sufficiently to allow him to arrange a commercial mortgage - and natualrally, he will be turning to us at Rangewell to arrange it

, but he still found it impossible to get the funding he needed. He was concerned that the property might be sold to another buyer if he could not arrange the funding he needed.

He approached us for a solution

Why we were able to help

At Rangewell, we work with all the lenders in the UK market, and not only do we know which are most suitable for a particular type of deal or a particular sector, we know those that can offer the most cost-effective solution for an individual need.

This means that when there is a funding challenge, we can use our knowledge of all the lending products available to provide a solution.

We were able to secure the funding required by our client at just 6%.

£420,000 at 6%

No work on the property was required, and our client was able to take the property on as a going concern - complete with some existing bookings. His business - and his revenues - had grown substantially as a result, virtually overnight..

if you are ready to find better answers to your property funding needs contact the Rangewell property hotline on 020 3318 2613

Getting the right deal for your property plans

Finding the right lender for your property can be crucial to its success and profitability. That’s why it is important to speak to the Rangrwll team.

Remember, bridging Loans involve large-scale funding, and getting the right deal can make a difference of tens of thousands of pounds to your costs overall .

Even a fraction of a percentage point can make a substantial difference to what you actually pay, while fees and penalties can complicate the position still further. There are many different lenders who may be prepared to offer funding. Each has their own approach to interest rates and fee arrangements, and comparing offers needs an expert eye.

At Rangewell, we know the lenders who can offer business Bridging, and we can use our expertise to identify the deal that really is the most appropriate for you. Our knowledge can not only help you secure the funding you need - it can save you a great deal of cash and mean the difference between profit and loss on a property deal.

Our experts work for you

At Rangewell oOur team is made up of industry specialists. Whatever your line of work, we have someone who understands the challenges you face - and the ways to answer them.

If you have a property funding challenge, remember, that our term includes experts in property finance, and our service is personal. It lets you talk to a property funding expert who understands the challenges you face with your particular property plans and will work to find a solution that is planned around your business needs.

It often means finding solutions that our clients did not know were possible - it always means having a property expert working to save you money

We have a range of funding solutions to help you make the most of your holiday home business plans.We will discuss your plans, we can then call on our network of property lenders, which includes virtually every name in the UK market, to get the funds you need. Our knowledge of the approach of the various lenders ensure that we can go directly to those most likely to have a positive response to an application - saving you valuable time, as well as money.

If you have a property project that needs funding, just call us and one of our experts will be able to discuss the options, and work out the most cost-effective ways to provide the funding you want - whatever the challenge your business plans present. - and in most cases, our services are absolutely free.

To find out more call the Rangewell property funding team for an informal discussion on 020 3318 2613 or email contact@rangewell.com