Securing £600,000 of Property Finance for a Builder with Bad Credit

When large sums are involved, lenders have to be cautious.

Anyone with a bad credit history, will find that securing commercial property funding can be difficult. A good credit history is vital evidence for lenders that a borrower is likely to repay a loan. Defaults, CCJs and even late payments can be red flags for some lenders.

Lenders exist who can provide funding if a lenders credit history is less than perfect. But unless you have in-depth knowledge of the lending industry it can be extremely difficult to find a sub-prime lender that can help and harder still to secure a reasonable rate. 

At Rangewell we have the knowledge required. Our network of UK lenders includes those who can provide property finance for borrowers with adverse credit histories - and we recently provided a solution for a borrower who was acquiring a £600,000 investment property.

Our client was a builder, who recognised the potential of a run-down property close to his home. He believed that if he could acquire it, there was profit to be made from its redevelopment. 

The property was a large house in poor condition, which was unlikely to attract a mortgage until work was done to make it habitable. Repairs to windows and the roof would be necessary, and there was some damp damage to make good - although the house was structurally sound. 

However, once the remedial work was done, he believed would easily convert into five flats.

The problem was that his credit rating was poor. He had been forced to default on loans taken out almost ten years ago, when a major client had failed owing him thousands. 

Knowing that his credit rating was low, he used his own savings and borrowed from a friend to secure the property as a cash buyer. 

He was confident that once he had the property in his name it would be possible to use it as security for a loan - which would fund the development work.

However, he hit a problem when he found it impossible to get planning permission for his initial scheme.

With planning permission in place, his property would be suitable to act as security for various forms of property finance, including a bridging loan and commercial finance. Without it, and with his adverse credit history, he was unable to secure the funding he needed  - and his funding partner needed repayment of their loan.

He turned to Rangewell for help.  

Finding a solution

We recognised that without planning permission, there was little chance of securing a commercial mortgage - which would be the preferred method of funding a project of this kind.

However, we believed we could provide funding with a business Bridging Loan.

With a bridging loan, the security is provided by the property - not the credit record of the borrower. This meant that our client could use this type of loan for his property.

Bridging loans are short-term loans secured against residential or commercial property. They are relatively high cost, and intended to be repaid quickly, either by the sale of the property or by another finance product designed for the long-term, such as a mortgage.

They can be used to provide funds quickly - in days rather than the months which may be required with a mortgage. They can also be used to secure property, which because of poor condition is not suitable for a mortgage, or when the borrower does not meet the criteria for lending. 

Do you have property plans which are difficult to fund? See how we can help.

Lenders 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 hours, and funds released in a matter of days. However, costs for bridging loans are high, with rates of 0.7-1.5% per month. There will also be an arrangement fee and exit fees - and if a loan runs past the agreed term there will be penalty fees.

However, fees and the growing interest can be rolled up into the loan, and all settled with a single repayment when the property is sold or refinanced - making the bridging loan suitable for development projects.   

We approached a specialist bridging company. They looked at the client's previous projects as well as his property and were happy to advance the funds required to pay off his borrowing - and to fund remedial work on the property. 

They were happy to advance £280,000 to pay off the funding partner - and allow repair work to progress while the builder arranged the planning permission he needed.

 We also explained to our client how he could repair his credit rating. He is now in the process of doing so - and has received the planning permission he needs. 

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.