How Does Commercial Finance Work?

Commercial Finance is offered for many reasons, including but not limited to the buying of stock, expanding or purchasing new premises, urgent cash flow needs, and debt consolidation.

A customer can typically borrow up to 75% of the value of the commercial property or security, although UK Property Finance can potentially raise more depending on the applicant and the strength of the case as a whole.

Repayment methods

The loan can be arranged in two Ways:

Interest-only basis: Monthly payments consist solely of the amount of interest generated on the money borrowed. This means that at the end of the agreed term, usually up to a maximum of 30 or 35 years, if other arrangements have not been made, the borrower will need to have an alternative, such as selling the commercial property, to repay the loan. Interest-only repayment methods are used to keep monthly payments to an absolute minimum.

Repayment basis: Monthly payments include interest generated plus part repayment of the money borrowed. With this method, although monthly payments will be higher than with the interest-only equivalent, the capital amount borrowed decreases each month, and the borrower will have the knowledge that if monthly payments are maintained as per the original agreement, then at the end of the agreed-upon term, the whole loan will be paid off.

Providing a common sense approach

Since the 2007/2008 credit crunch, high-street banks and lenders in the UK have become cautious about commercial lending. The main reason for this is that following the crash, many lenders wrote down the value of their commercial loan book as a large oversupply in the commercial market meant that values plummeted much quicker and much further than the residential equivalents. This lending mentality from the traditional funders left a large void within the market, and a growing number of so-called “challenger banks” evolved to help the commercial market get back on its feet.