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Effective long-term business loans
This type of loan is secured against property that is not your main residence. This is a financial tool that helps people and businesses complete property transactions particularly if they are looking to secure low interest rates over a longer period.
The dream for every private business is to reach a point where expansion is no longer an option, it’s a necessity and the business demands development in terms of size or facilities in order for the business to hold its share of the market and remain competitive or prosper financially.
Expansion itself can take many different guises, this may include acquiring more space or a new venue to accommodate taking on more staff to handle an increase in levels of trading activity and more sales, or the business may need new or additional equipment to expand production or provide a greater range of services.
Movement to accommodate expansion could occur in two-ways. A start-up business that began life at home now needs larger rental premises or, chooses to buy new business premises for which a ‘Commercial Mortgage’ becomes a viable option.
Commercial Mortgage explained
A business mortgage is technically referred to as a ‘Commercial Mortgage ‘and offers options for business owners to borrow money for their business to make a purchase or acquisition. This may be the purchase of land, or a property to enlarge the business or simply to give the business a tangible asset that provides trade premises or an additional income. In comparison to a residential mortgage, the money can be sourced from either a typical high street bank or specialist lender and is repaid in monthly instalments including interest, or on an interest only basis, where the principal capital remains outstanding until repaid as a lump sum or the asset or property is sold to repay the original mortgage taken out against the property or asset.
Commonly used by business owners, commercial mortgages allow a business to own premises either for their own company use or to lease out to another business. Commercial investors also frequently use a commercial mortgage to buy property that will be leased to a business or in other instances by a residential property owner wishing to buy property to rent to tenants and generate rental income whilst also enjoying a uplift in the property value.
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Unlike residential mortgages, commercial mortgages tend to work on the borrower’s unique status, track record and experience within their business market or the property rental market if the property is for investment. Lenders and underwriters therefore are more likely to favour existing landlords but they will look at each application on a case-by-case basis and provided the financials stack up most will accommodate applications from new landlords. There are several options when applying for a commercial mortgage, some borrowers choose to go direct, but most opt to use a commercial mortgage specialist like Lumi Bridging Solutions who have experience within the property market funding and understand the complexities of commercial lending and the need to source the appropriate funding to suit the objectives and individual needs of each landlord and their specific purchase or project.
It often makes good financial sense to buy rather than rent a property as ownership gives the business more control over their premises and avoid additional management fees and rent increases. However, general upkeep and maintenance is a variable cost for which the business owners should consider as they will be liable for these additional expenses as landlord.
In most cases property values increases over time so there is a financial benefit in addition to the saving on rental expenditure. Although ownership is a long-term commitment it can also provide an option to rent part or all of the premises in the future to generate additional income. Although this may require lender approval and amendments to the original terms and conditions of the commercial mortgage agreement or conversion to a ‘Buy to Let’ mortgage, ownership can provide additional business opportunities and options to a landlord or owner.
A commercial mortgage is generally classed as an unregulated facility for business users or for any type of business activity or investment. They are based on the strength of a business financially, the individuals involved in the business and the value of the property or asset being acquired. Commercial lenders will want to the business to demonstrate consistency and a trading track record within the business’s marketplace together with decent profits in the company’s management and filed accounts to show commercial affordability to make monthly repayments. Commercial mortgage interest is higher than a residential mortgage as the facility presents greater financial exposure to the lender and is dependent on the performance and long-term viability of the business.
Interest is however usually lower when compared to a standard business loan. Commercial mortgages are generally higher in value as commercial property is usually bigger than residential and as the risk is greater to the lender they require a larger deposit from the applicant business or owner, this is generally a minimum of 30% of the purchase price or lenders valuation.
A residential mortgage on the other hand is a regulated facility used for private property purchases that is likely to be your main residence and is based on the individual’s income, outgoings and affordability to make monthly repayments in addition to the value and condition of property. Interest rates are lower than a commercial mortgage and the rate of interest is based on the deposit which is normally between 10-20% of the property value and the applicant’s personal financial circumstances and credit history.
By using Lumi Bridging Solutions to apply for a commercial mortgage you gain our experience of the commercial lending market and knowledge of which lender will be the most suitable or appropriate to meet the needs of your business. Commercial lending can be complex and often subject to the type of business or circumstance and dependent on several factors that are lender criteria specific. Lumi Bridging Solutions can select lenders most suited to your business with a full disclosure of the current options open to your business and help guide business owners through in the application process to save time. We will also be able to advise applicants of lending options and ensure time is not lost during the application process and that all information is collated correctly prior to being submitted. Applicants will also enjoy updates on the application which is important when working to a timescale to complete a project or purchase funding.
Prior to applying for a commercial mortgage, applicants should look to complete a business forecast, factoring in costs from all aspects of the business which could include personal costs. These factors involve whether the maintenance of regular monthly repayments can be comfortably met, whether there are other loan repayments outside the commercial mortgage to be taken into consideration and how collectively these may affect cashflow or long-term financial commitments or targets. Applicants should note, they risk damaging their credit ratings if they are unable to meet monthly commitments and the lender can exercise the right to repossess the property if the borrower falls into default.
Higher rates of interest may apply to applicants with a poor credit rating, so checking your rating is always good practice before applying for any form of lending. An application made by a new business with a strong credit and trading history may still be viewed as high-risk when comparisons are made against an existing business. The result could mean lenders request personal guarantees or security against any borrowing.
Lenders carry out similar checks made by residential mortgage lenders, which include affordability and the financial health of the business. This is likely to include a full business credit check and examination of the company’s filed accounts to see how a company is performing and managing any financial commitments that include debt or other financially connected issues.
Lenders may need to see the profitability of the business, so will request a minimum of 3 months business bank account statements. Other information will require proof of identity; 3 years full residential address history and any lease or tenancy agreements. Applicants should look to prepare for the provision of a business forecast, demonstrating viable financial plans.
Application sequence for a commercial mortgage:
- Speak to one of the Lumi Bridging Solutions team, outline the business activity and explain the need and purpose of the commercial mortgage so we can get a snapshot of the business and circumstances surrounding the trading activity of the business.
- Supply key information about the business in an email.
- Complete a commercial mortgage application.
- Supply all supporting documentation requested by Lumi or the lender.
- Obtain provisional Heads of Terms from lender
- Provide any formal valuation of the property from a recognised (RICs) valuer if available.
- Wait for lender to carry out their due-diligence and initial underwriting process including legal checks and complete any necessary paperwork.
- Get a formal offer from a lender, once approved.
When applying for a commercial mortgage, an applicant should prepare for the following fees.
- Arrangement or administrative fees – A charged made by the lender for the loan provision.
- Lumi Bridging Solutions as a brokerage have no up-front brokerage fees; however we charge a fee for our services in arranging a loan or any finance facility.
- Surveyors or Valuation Fees – A Royal Institution of Chartered Surveyors valuation (RICs) is usually required.
- Legal Fees – Solicitors fees.
Please note the addition of fees onto any type of mortgage, instead of paying initially will be more expensive as interest is charged on the amount added.
Commercial mortgages usually need a deposit between 30-40%.
Residential mortgages vary between 5–20% of the property’s value. A borrower may look to secure a separate loan to cover the deposit; however this will be taken into account by lenders when conducting affordability checks.
Alternative options available
Commercial mortgage lenders will only lend against ready to use property. They will not lend against property which needs to be refurbished unless the business is going to pay for the refurbishment themselves and the refurbishment itself is mostly cosmetic.
Bridging finance is generally the type of lending used where a borrower intends to refurbish a commercial property and requires funding towards that we well as the purchase. If bridging finance is required, the business will need a deposit of approximately 35% and Lumi Bridging Solutions can also secure lending towards refurbishment which can be as much as 100%.
If bridging finance is required, Lumi Bridging Solutions are able to organise a long term commercial mortgage once any refurbishment is near completion.
Where a business is looking to purchase or refinance a large portfolio of buy to let residential property, they are often told they need a commercial mortgage but what they actually need is a multi unit buy to let mortgage which Lumi Bridging Solutions has access to from its lender panel.
Bridging Finance to break that chain
Need a bridge until you can sell your current home, or simply release funds for another project.
Buy to Let Bridging
Buying at auction or a property for refurbishment?
A bridge can give you funds fast to complete that quick purchase.
Commercial Bridging Finance
Looking to buy a commercial property or need funds for another business purpose?
Borrow from £25,000 to £15,000,000
No matter how much you want to borrow, we will do our best to make it happen, without the fuss or headache.
Rates from as little as 0.37% per month
Lender’s rates change regularly, so we always scan the market to get the best rate for your specific circumstances.
Make use of our in-house accountants
Their expertise and experience are part of our service and at your disposal.
Helping you choose the right bridging finance for your home move or investment property
Find the right bridging finance at Lumi Bridging Solutions
Contact us today for your bridging finance, buy to let mortgage, commercial mortgage, bridging loan for house purchase, HMO purchase, emergency cashflow loans, auction finance, bridging loans for property development, bridging loan mortgage, business bridging loan, commercial development financing.
Bridging finance for your commercial or residential property
LUMI BRIDGING SOLUTIONS IS A TRADING NAME OF FEINGOLD FINANCIAL SERVICES LIMITED
Company registration number 05087823. FCA registration number 303451. Data protection registration number Z8766562
Registered office: Europa House, Barcroft Street, Bury, BL9 5BT.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE SECURED AGAINST IT.