The Mortgage Hive - Service

Commercial Mortgages and Loans – What you need to know. Regardless of where your business is in its journey, you will have to be very careful and wise when dealing with commercial property mortgages and loans. It takes times and effort to understand how to navigate the Commercial Mortgages process. With guidance clients can understand what it takes to get the most attractive rates and terms. You can save a considerable amount of money in the long term with good decision making. This leaves you free to invest extra capital back into your business. What are Commercial Mortgages ? Firstly Commercial Property is defined as property that is used exclusively for business purposes. This is wide ranging and can include anything from retail shops and office sites to industrial and apartment complexes. The commercial loans themselves are mostly issued to business entities as opposed to individuals themselves. So a Commercial property Mortgage could be set up against a Limited Liability Company or other corporate entity. The loan would then be used for the purchase of new or existing commercial properties, or land hold. How much is a Commercial property deposit ? Each Mortgage or loan can differ a lot by business type and credit history. Location can even be a factor. To put it in some perspective the total amount of funding on a Commercial Mortgage can be anywhere between a typical amount of fifty thousand to tens of millions of pounds. Repayment periods can also vary greatly as well. These can be anywhere between 2 or 3 years and up to 20 years.Generally speaking though most of the mainstream lenders will require a deposit of 20 – 30% on the total purchase price of the property. The best rates are typically available with the higher percentage deposits. Many refer to this as LTV Ratio, or ‘loan to value’. In this case it would mean a LTV Ratio of 70-80%. Considering most Commercial Mortgages and acquisitions will need considerable funding, raising deposits can be a big challenge. What documents do I need to apply ? See the below list as an example of what may be required for an application….. Income expenditue form Asset and liability form Personal credit score Commercial credit score Balance sheets Key parts of a Commercial Property Mortgage There are mainly 3 important aspects to a Commercial Property Mortgage – Mortgage Terms Interest rate Arrangement fees Comparisons between different lenders can definitely pay off. So do your research. Keep in mind what works best financially and suits your long term business ambitions and goals. What are the Mortgage terms ? As a general rule an intermediate term mortgage lasts around 3 years. Of course this varies. Longer term loans last usually between 5 and 25 years. Long term loans require some kind of collateral to act as a guarantee. They may also place restrictions on your company’s ability to take financial risk in order to limit their risk. It’s also worth mentioning that a Commercial Mortgages can be allocated to you either as a balloon payment. Or an amortized loan. The main difference is that a balloon payments will require you to make one final lump sum payment at the end of the agreement. This is to cover the remaining principle balance as well as the interest fee for the term of the loan. An amortized loan on the other hand is repaid in fixed installments until the agreement is complete. So varying amounts of each installment will go towards the principle balance and the interest being accumulated. Due to the nature of Balloon Loans they are usually only offered with intermediate term loans.It’s not unheard of though for some lenders to offer 10 year balloon loans on commercial real estate. Depending on the size of the Commercial Property Mortgage it’s likely that this balloon payment will be a considerable amount. This is because your payments will have focused on the interest as opposed to both the balance and interest. Only opt for this type of loan if you have the cash reserve or suitable exit to allow for this. Or you are confident in refinancing when the loan term comes to an end. What are the Mortgage Interest Rates ? The interest rate that you are offered depends on a business’s revenues and its financial situation. Commercial Property Mortgage rates are most of the time slightly higher than those of residential mortgages. It’s no secret that lending to businesses is seen as more risky than lending to individuals. Especially if the business is new. New businesses don’t have established credit histories and the lender is fairly limited in the action they can take if the loan is not paid. The specific product or type of commercial mortgage will also effect the rate. What are Closing Fees ? Closing fees are essentially application fees. Here you will have to pay some upfront fees for a Commercial Property Mortgage. This is to cover anything from reports, appraisals, legal expense, insurance and any other associated costs. As a general rule any in advance fees should be not more than 2%. Just be clear with the lender what is expected of you in a cost breakdown. That way there are no surprises. What about a Property Development loan ? A Property Development Loan is essentially a short term secured loan. Usually payments would be made by the lender through installments. Property development lenders may look for – On approval the lender will often appoint a professional surveyor in order to approve the work progress at each stage. This then secures more funding as the development progresses. It is common practice as the lender will look to limit their risk. Typically by not advancing more than 65% of the project value. As more progress is made, more value is added to the property. Once complete the Property Development Loan is either replaced by the capital from the sale of the development, or by a term mortgage which is calculated on the end valuation of the development. Fees for Property Loans tend to be higher than that of regular Commercial Mortgages. This is because of the extra commitment needed from the lender to monitor the projects progress. Mezzanine Finance and Private Equity Finance are options for large scale property developments over £2 million. Here lenders look to take a share of the profits from the final sale of the development. Getting a Commercial Property Mortgage the right way. Commercial Mortgages tend to be subject to more scrutiny than traditional residential loans. It usually takes between 6 – 8 weeks to process and complete an application. Its good practice to prepare your documents before you submit your application. Bank statements for the previous 3 -5 years are a good place to start. You should also be able to present your accounting reports, tax returns and also personal financial records. You really want to choose a mortgage package that best serves your long term business goals. A lender will make sure with checks and balances that you have enough operating income to service the debt on your mortgage. With that said you need to be sure you have the necessary cash flow to support your business and take it to where you want it to be. Before committing look for financial flexibility in the package, so it can be adapted as your business grows and needs change. What do I do next ? With many years Commercial Mortgage experience in working with first time buyer clients to purchase premises for own use by way of Commercial Mortgage. Or to assist clients in moving to larger premises it all starts with a phone call or enquiry so we can begin to guide you through what is required. With access to whole of market lenders via our broker contact we support you through the process from start to finish. All you need to do is phone or complete the online enquiry form to set the ball rolling. ShortForm Business Consultants Ltd (Company Number 10428423) provide consultancy services on behalf of Empire Commercial Finance Ltd (Company Number 08798534). We are not a Broker or Lender.

The number of Landlords looking at Commercial Loans as a means to fund purchases has been steadily increasing. During the last 18 months the number has doubled as landlords try to avoid the up and coming buy to let tax changes. The National Landlords Association demonstrates through recent research that the proportion of Landlords exploring the option of Commercial Loans and Mortgages has rose from 10% during July 2015 to 19% at the end of 2016. The buy to let tax changes were announced in July 2015 and will take full effect on fully integrated by 2021. The changes will prevent landlords with buy to let mortgages from subtracting interest payments as well as any other additional financial service costs before they submit their taxable income. Coincidentally this increase arrives with reports of a 500% increase in the number of landlords choosing to form limited companies within the last year. To put this in perspective it was about 1% in January 2016 numbering approximately 20,000 landlords compares to 6% by the end of 2016. About 120,000 Landlords total in all. Owning the properties through a limited company will allow Landlords to avoid the planned buy to let tax changes. Rather they will pay Corporation Tax, currently 20% of their taxable profits. As a result of the buy to let tax changes over a hundred thousand landlords have set up limited companies in order to side step the changes. Many Landlords have also hinted at their intention to look to commercial loans in order to fund future property developments and acquisitions. It’s worth mentioning that you can get commercial loans and mortgages even if you are not an incorporated landlord. Though they are historically mainly used by Limited companies and we would expect to see this use trend continue in the coming years. Landlords want to reduce tax bills. The Treasury is all too aware of the potential drop in tax revenue as a result of this strategy. It would probably be good advice to hold back on incorporating a limited company if you haven’t already done so. The chancellor has hinted at a review into the matter.

Short Form Consultants was Established in 2016 by Nigel Whitfield who has 20+ years Banking experience and more importantly 10+ years of Commercial Finance experience covering the period following the financial crisis. Nigel has an in-depth knowledge and understanding of the demands placed on businesses and the need for a professional presentation of a funding proposal to meet the demands of funding providers. Areas of specialty include Commercial Mortgages, Invoice Finance, Invoice Factoring, Asset Finance, and Working Capital Solutions. Here at Short Form Consultants we believe in responsible lending advice and guidance. We make this pledge of transparency as we think business owners deserve to be treated fairly and with respect. We follow some core principles when helping clients with Commercial Finance. Transparent and Fair Terms It’s your right as the customer to see any terms and costs of financing you are offered in writing and in a format, that is clear and accurate. For lenders, we will seek – Transparent Rates – We want to see a clear annual interest rate or APR. No Hidden Charges – Full disclosure of any advance and scheduled charges. Plain English – We want to see all the loan terms in an easy to read understand manner. This includes the loan amount, frequency of payments and any collateral that may be required to secure it. A Clear Comparison – A pricing presentation that states all key points, terms and pricing to the borrower when the loan is summarised. Non-Abusive products only! We do not want you to end up with a commercial finance product designed to trap you in the expensive re borrow cycle. We believe that the profitability should come from the success of your efforts, not being unable to repay the loan in line with its original terms. For lenders, we will seek – No Debt Traps – In the event the borrower cannot repay the loan we only want to see credit extended if a due diligence process confirms that the borrower has a credible recovery plan in place. No Double Standards – If you refinance we don’t want to see ‘new’ fixed charges added to the principle agreement. No Pressure – We want our clients to be able to consider their lending options without the hassle of pressure sales and timelines. Responsible Underwriting. You want to work will lenders who will support a successful outcome. Not a failure. Many lenders will accept high loss rate as ‘a business reality’ whereby they pass the cost back to you in the form of high interest and closure fees. We don’t accept this. For lenders, we will seek – Belief in the Borrower – This means that in the event of an offer they make a confident one. Sure that you can repay the entire balance and meet the obligations without default. Interest Alignment – Some lenders will use a portion the borrower’s gross sales as a form of repayment. Particularly with Invoice Finance. Still through various indicators the lender should confirm that the business can remain profitable or is on a credible path to profitability. Financing for the Right Amount – At Short Form Consultants we offer a bespoke approach whereby we want to finance to the client’s needs, rather than simply offering the most they qualify for. Credit Reporting done right – Reporting to credit agencies provides the necessary information for lenders to make informed decisions on whether an applicant can repay. Lenders should not do this for underwriting though. Only in certain circumstances (like after a default) should the repayment performance of a borrower be reported back to a credit agency. Dealing with Commercial Finance Brokers in the UK We are fortunate enough to work with some of the most reputable NACFB Commercial Finance Brokers in the business. We passionately believe in fair treatment from Brokers. We require honesty and integrity at all time, also impartiality and transparency to the need of your proposal. For any Lenders and Brokers we seek – Transparent Loan Options – We require all loan options that the borrower Is eligible for to have the lowest APR emphasised to them. We also ask that the finance broker discloses all the lenders who have been approached on the client’s behalf. Transparent Broker Fees – This means full disclosure of what the broker gets as a commission. Either directly or indirectly, paid in advance or as part of the loan. Empowering the Borrower – Inform the client on the different loan options and reasonable ensure that this is understood. Brokers should always be open and forward with APR’s and Loan calculators. This ensures clients can shop around easily. No Conflict of Interest – These should always be disclosed by the Broker. Weather this is to do with an incentive to sell a business loan or a more favourable fee structure they should always be acting in the borrower’s interest. Non-Discriminatory Lending This may seem obvious but we believe in the principles behind fair lending laws and legislation. This includes the Equality Act 2010, which aims to prevent discrimination against those seeking credit and Commercial Finance. Fair Collection Practices In the event a client has payment difficulties we believe in fair and respectful treatment. Loan defaults should not be collected on until this has been discussed properly with the client and all other options exhausted. For lenders, we seek – A Fair Treatment – All lenders should be working within the Fair Debt Collection Practices Act 1977. It states requirements that debt collectors and lenders should adhere to. It also provides consumers with protections and methods to dispute or validate debt information. Oversight Responsibility – Due diligence in vetting and overseeing the collection methods of both debt collectors and buyers. A lender should not be working with firms who do not provide fair treatment. Information Accuracy – All information should be recorder and transmitted accurately to any third parties involved.

Commercial Mortgages and Loans – What you need to know. Regardless of where your business is in its journey, you will have to be very careful and wise when dealing with commercial property mortgages and loans. It takes times and effort to understand how to navigate the Commercial Mortgages process. With guidance clients can understand what it takes to get the most attractive rates and terms. You can save a considerable amount of money in the long term with good decision making. This leaves you free to invest extra capital back into your business. What are Commercial Mortgages ? Firstly Commercial Property is defined as property that is used exclusively for business purposes. This is wide ranging and can include anything from retail shops and office sites to industrial and apartment complexes. The commercial loans themselves are mostly issued to business entities as opposed to individuals themselves. So a Commercial property Mortgage could be set up against a Limited Liability Company or other corporate entity. The loan would then be used for the purchase of new or existing commercial properties, or land hold. How much is a Commercial property deposit ? Each Mortgage or loan can differ a lot by business type and credit history. Location can even be a factor. To put it in some perspective the total amount of funding on a Commercial Mortgage can be anywhere between a typical amount of fifty thousand to tens of millions of pounds. Repayment periods can also vary greatly as well. These can be anywhere between 2 or 3 years and up to 20 years.Generally speaking though most of the mainstream lenders will require a deposit of 20 – 30% on the total purchase price of the property. The best rates are typically available with the higher percentage deposits. Many refer to this as LTV Ratio, or ‘loan to value’. In this case it would mean a LTV Ratio of 70-80%. Considering most Commercial Mortgages and acquisitions will need considerable funding, raising deposits can be a big challenge. What documents do I need to apply ? See the below list as an example of what may be required for an application….. Income expenditue form Asset and liability form Personal credit score Commercial credit score Balance sheets Key parts of a Commercial Property Mortgage There are mainly 3 important aspects to a Commercial Property Mortgage – Mortgage Terms Interest rate Arrangement fees Comparisons between different lenders can definitely pay off. So do your research. Keep in mind what works best financially and suits your long term business ambitions and goals. What are the Mortgage terms ? As a general rule an intermediate term mortgage lasts around 3 years. Of course this varies. Longer term loans last usually between 5 and 25 years. Long term loans require some kind of collateral to act as a guarantee. They may also place restrictions on your company’s ability to take financial risk in order to limit their risk. It’s also worth mentioning that a Commercial Mortgages can be allocated to you either as a balloon payment. Or an amortized loan. The main difference is that a balloon payments will require you to make one final lump sum payment at the end of the agreement. This is to cover the remaining principle balance as well as the interest fee for the term of the loan. An amortized loan on the other hand is repaid in fixed installments until the agreement is complete. So varying amounts of each installment will go towards the principle balance and the interest being accumulated. Due to the nature of Balloon Loans they are usually only offered with intermediate term loans.It’s not unheard of though for some lenders to offer 10 year balloon loans on commercial real estate. Depending on the size of the Commercial Property Mortgage it’s likely that this balloon payment will be a considerable amount. This is because your payments will have focused on the interest as opposed to both the balance and interest. Only opt for this type of loan if you have the cash reserve or suitable exit to allow for this. Or you are confident in refinancing when the loan term comes to an end. What are the Mortgage Interest Rates ? The interest rate that you are offered depends on a business’s revenues and its financial situation. Commercial Property Mortgage rates are most of the time slightly higher than those of residential mortgages. It’s no secret that lending to businesses is seen as more risky than lending to individuals. Especially if the business is new. New businesses don’t have established credit histories and the lender is fairly limited in the action they can take if the loan is not paid. The specific product or type of commercial mortgage will also effect the rate. What are Closing Fees ? Closing fees are essentially application fees. Here you will have to pay some upfront fees for a Commercial Property Mortgage. This is to cover anything from reports, appraisals, legal expense, insurance and any other associated costs. As a general rule any in advance fees should be not more than 2%. Just be clear with the lender what is expected of you in a cost breakdown. That way there are no surprises. What about a Property Development loan ? A Property Development Loan is essentially a short term secured loan. Usually payments would be made by the lender through installments. Property development lenders may look for – On approval the lender will often appoint a professional surveyor in order to approve the work progress at each stage. This then secures more funding as the development progresses. It is common practice as the lender will look to limit their risk. Typically by not advancing more than 65% of the project value. As more progress is made, more value is added to the property. Once complete the Property Development Loan is either replaced by the capital from the sale of the development, or by a term mortgage which is calculated on the end valuation of the development. Fees for Property Loans tend to be higher than that of regular Commercial Mortgages. This is because of the extra commitment needed from the lender to monitor the projects progress. Mezzanine Finance and Private Equity Finance are options for large scale property developments over £2 million. Here lenders look to take a share of the profits from the final sale of the development. Getting a Commercial Property Mortgage the right way. Commercial Mortgages tend to be subject to more scrutiny than traditional residential loans. It usually takes between 6 – 8 weeks to process and complete an application. Its good practice to prepare your documents before you submit your application. Bank statements for the previous 3 -5 years are a good place to start. You should also be able to present your accounting reports, tax returns and also personal financial records. You really want to choose a mortgage package that best serves your long term business goals. A lender will make sure with checks and balances that you have enough operating income to service the debt on your mortgage. With that said you need to be sure you have the necessary cash flow to support your business and take it to where you want it to be. Before committing look for financial flexibility in the package, so it can be adapted as your business grows and needs change. What do I do next ? With many years Commercial Mortgage experience in working with first time buyer clients to purchase premises for own use by way of Commercial Mortgage. Or to assist clients in moving to larger premises it all starts with a phone call or enquiry so we can begin to guide you through what is required. With access to whole of market lenders via our broker contact we support you through the process from start to finish. All you need to do is phone or complete the online enquiry form to set the ball rolling. ShortForm Business Consultants Ltd (Company Number 10428423) provide consultancy services on behalf of Empire Commercial Finance Ltd (Company Number 08798534). We are not a Broker or Lender.