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What is a Commercial Property Loan?

A guide to understanding the finance you need

Unfortunately, they aren’t many cash buyers around when it comes to commercial property development. As a result, anyone looking to get involved in this sector will likely require large scale finance or commercial loan for their development projects.

If you’re looking to develop a commercial project, how do you know that property development is the right move? 

Don’t worry; this guide will explain everything there is to know about commercial property finance, loans, and the payback rate you should expect. 

When deciding whether you want to invest in commercial property, you probably need to think about the clear distinction on what a commercial property is, how it will be developed, and whether or not you can afford to purchase it or not.

Then, you’ll need to think about if taking commercial development finance is right for you and where the economic forecast is a good time to invest. You'll also need to think about the commercial loan terms and make sure you are in full agreement with your lender. Make sure you're happy with your rate before making the financial commitment. 

What is commercial property?

Commercial property is any piece of land or building that is used for business. The common types of commercial property are:

Retail

Shopping centres, supermarkets, warehouses for retail, high street stores, bars and restaurants, and even car showrooms are classed as retail spaces. 

Industrial

Units, factories, warehouses and agricultural property are all classed as industrial spaces. 

Office

Any property that is primarily built for office use, including facilities such as car parking, amenities, and any other essential services fall under this category. 

Whatever you're looking for, Rangewell and independent lenders will work with you to make sure you have the right funding and security in place to grow your business.

Want to know what funding options you have?

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Why should I invest in commercial property?

There is no straight answer to this question, unfortunately. However, suppose you speak to authorities in the commercial market. In that case, they’ll probably suggest that those without experience as commercial property investors should probably consider investing their money into stocks and shares belonging to companies who actually specialise in commercial property.

This probably opens up several questions such as:

  • Is it a good time for new investors to make the dive into the commercial property world?
  • Is it worth the risk of investing in companies that specialise in this area?

The answer is dependant on the type of commercial property you’re looking to invest in and the funds you'll have available. A commercial property is defined as one from which you will make a profit from, either from rent or capital gains. This will cover everything from buying or renting out a garage to purchasing a shopping centre to a hotel complex. 

A first-time property commercial investor will more than likely be at the bottom end of the scale with the buy to rent market. So, the advice above is probably not too relevant to those who have a pocket full of cash and big dreams of owning a 5-star hotel.

To find out more about a commercial loan, speak to Rangewell today

Our commercial lenders can help you to improve your cash flow

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Property development

The concept of property development is purchasing a property to improve it, increasing the overall value, and selling it.

Property developers can also use this method to purchase a property to make improvements on it, with the end goal of increasing its value and selling it on to make a profit from it. 

Property development is not easy, and it can be very challenging indeed. It involves precise planning, sticking to a budget effectively, and deciding what improvements to make and how much to spend on these improvements. 

At the moment, the property market in the UK is booming after a year of ups and downs through Covid. Homes are selling at a quicker speed, and sellers are getting more than their asking price. So the future is looking brighter for both buyers and property developers. 

Property development has never been as popular, and as a result of this, the commercial property finance sector is likely to be a booming market. 

How to use commercial property finance

Despite several factors that could have had a negative effect on the finance sector, it’s still a popular method of lending for property developers. Commercial property is still sought after, and there seems to be a strong appetite for people looking to move businesses to new developments. 

The property development sector falls into the short term finance sector, and funding is typically a short-term loan that will enable funding for the identified developments or a new-build project. As a rule of thumb, lenders will usually look to lend up to 70% of the gross development value of a project. 

Having the appropriate finance in place will allow you to make your property development project run smoothly and hassle-free. At Rangewell, our brokers can offer you a wide range of finance platforms, so you can work out which option is best for you.  We can even help you source a deal if you have a poor credit history.

Finance terms are usually arranged for a shorter period than commercial mortgages, typically between 6-18 months, although this will depend on the size and scope of your project. Lenders are likely going to want to see your financial statements and other business details so make sure you have these to hand when speaking to our specialists. 

Lending criteria

There will be terms of your property finance that will be dictated by the following aspects:

  • The purchase price 
  • The location of the property you’re buying
  • The design and overall quality of the building 
  • Analysis of the use and demand 
  • Information on the pre-letting tenants
  • Experience of the borrower
  • The loan size you’re looking for
  • The duration of the loan 
  • The equity provided by the borrower
  • Any collateral
  • Any debt that you may have
  • Property yield (this will include the lease terms, maintenance and income)

Lenders (and/or investors) must understand and agree to the valuation, the lease conditions, any repair and maintenance costs, and the current and future market. 

Our private investors can help you with business expansion, so get in touch today to find out more about commercial real estate loans.

Commercial property finance rates 

There are no specific rules for this sort of finance. Every lender will assess single applications on its own criteria before deciding the terms of the finance. 

Each development project will be viewed individually: the first step will be to know how to finance your property developments, and the second will be applying for property finance. 

Every property developer needs to have a solid plan and a plan of action for every aspect of the planning stage, right through to the financial projections of their development. 

To find out more about your monthly payments and how much you'll be paying, speak to Rangewell today. Please note that in the event of loan default, your assets may be at risk. 

Property finance in the buy to let market

Looking a the buy to let market for a moment - we know this has changed dramatically as the housing market has readjustment itself.

A few years ago, landlords were snapping up cheap properties and making a killing.

The situation was harsh, and people were desperate to sell rather than risk repossession. 

The economic outlook has changed. Many people have found that property prices have risen quickly in the local area and find it hard to add to their portfolio. There are still bargains to be had, but it might be good to think about going further afield if you are prepared to be a landlord from a distance. 

Landlords buying now must be prepared for a smaller yield due to the rise in house prices. They cannot raise rent amounts to cover this additional cost as rental costs need to fall in line with similar properties in the area to attract the right tenants. There is also the possibility that rental could stay empty for months until the economy gets back on its feet. 

A bridge loan or a standard business loan could be an alternative to a commercial real estate loan, to find out more about the different types of loans available and what's involved in a loan application. Speak to Rangewell today. 

Still unsure which type of finance is right for your property purchase?

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Is commercial property development for you?

We work with limited companies right through to insurance companies, so whatever industry you're in, we can help source the right deal for you. Whatever property development finance you need, we can help.

The winners in the property development sector will likely be those who can identify good commercial property investment opportunities. In other words, these are the people who will be investing in brick and mortar rather than stocks and shares. 

So yes, now could be the best time to invest in the UK commercial property market, providing you do so with the proper planning and the right advice. You can get fantastic deals, and it can be an excellent investment. 

Please note that residential mortgage for residential property will differ from commercial loans, so speak to Rangewell to find out more. 

Why not talk to Rangewell about property finance solutions? Whether you’re looking to seek a better commercial property deal, or you’re looking to get started and want to learn more about your financial options, we can provide detailed information about commercial property finance products. We’d love to hear from you!

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