Financing your purchase

When financing your new property, there is a lot of technical jargon out there. Here are the basics you need to understand about property financing.

Commercial property finance has plenty of variants, which can sometimes make it tricky to understand.

And there are a variety of places from which financing can be sourced, depending on your individual circumstances. Here's our guide to the most common finance options for commercial purchases.

Loans

Commercial loans will be used for business purposes, and will mostly be used to buy new commercial properties, commercial investment, or for business owners to expand their current premises.

Either way, the sole purpose will be for business and to make money. Lenders will usually fund up to 75% of purchase costs with terms between a minimum of 15 years to approximately 30 years. The lender has full legal claim of the property until the loan is fully repaid.

Buy-to-let loans, on the other hand, are solely for investors wanting to buy a property so that they can let it out to tenants.

This way, the owner can receive rental income and any capital gains once they choose to finally sell the property.

Commercial mortgages

In the UK, there are over 150 mortgage providers that offer a wide range of competitive rates on commercial mortgages. It is therefore important that you do your research online and shop around for the best rates that are most suited to your needs.

Most mortgages will be arranged through a bank or building society. The process is easier if you already have an account with a bank, as your account manager will know your credit history, turnover and other business facts.

Mortgages will often be given up to 75% of the property's value, meaning that you need to have a decent deposit ready, and ensure that your monthly buy-to-let rental rate will cover the monthly mortgage payments including interest rates.

If you have a bad credit history and can’t secure a loan through traditional avenues then look for an Adverse Mortgage Lender, rates will be considerably less competitive. There are also a series of brokers and mortgage intermediaries available.

For more information, consider joining a local property networking group to minimise the risk of making any major mistakes.

Getting that all-important 'yes'

Ways to increase your chances of getting a 'yes' from a lender are:

Build a healthy deposit, which also highlights financial stability

Pay-off any outstanding credit cards and overdrafts

Tidy up your credit history by contacting past creditors and rectifying any issues

Ensure you have all the necessary documentation

Aim for conventional property choices, as the riskier the buy, the less likely banks will pay out. For unusual places, a specific commercial lender may understand the market and local area better.



Jo Thornley

About the author

Jo joined Dynamis in 2005 to co-ordinate PR and communications and produce editorial across all business brands. She earned her spurs managing the communications strategy and now creates and develops partnerships between BusinessesForSale.com, FranchiseSales.com and PropertySales.com and likeminded companies.

@BusinessMaiden