Best commercial funding options on the market right now
There is a range of property finance products for commercial projects currently available on the market and which you choose may depend on your type of project.
Here we take a look at a few common funding options.
With a commercial mortgage, lenders generally fund up to 70% of purchase price with terms of up to 25 years. Repayment options can be interest only or repayment and the interest rate on commercial mortgages will likely be higher than say a standard Buy-to-Let mortgage. This reflects the flexibility of the products and that generally speaking they will be used on what lenders’ consider to be riskier projects than say a residential property.
Commercial Mortgage payments can be fixed but are, more often than not, linked to a percentage above something like LIBOR (London Inter-Bank Offered Rate), which is the rate that banks lend to each other. Assessment for the mortgage will be based on you/your business, the project, tenant if there is one, the rental income and the use and likely resale use of the building.
Interest payments on a mortgage for commercial property are tax deductible and are not affected by the recent reduction of interest relief on residential investment properties
There are plenty of commercial mortgage providers to choose from including main high street banks as well as specialist lenders – you just need to research the market to find the right deal for you or use a good broker.
As the name suggests, bridging finance is a type of short-term business loan – it gets you from one step to another. At the end of the bridge, you can either pay off the loan in full or at that time secure a more permanent type of finance.
It is often used as quick method to finance the purchase of a property as the loan can often be agreed within hours..
Property developers often use bridging loans to fund their projects by using the short-term loan to, say, buy land without planning permission. They use the bridging loan to acquire the land. Then they obtain the relevant permissions for developments. Once planning is in place these they can either switch to Development Finance or just sell at that stage and pay off the bridging loan. The unique aspect of bridging loans is that they mainly only view the asset when lending and pay less attention to other criteria.
Development Finance is as the name suggests specifically for developments. To qualify, you will usually need to have development experience or be working with someone who has experience of the type of development you are aiming to do.
Development Finance can often be provided for a percentage of the purchase price say 70% and 100% of the development costs. Development Finance can not be used to buy land without planning – see bridging above.
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