Commercial Finance is offered for many reasons such as for the buying of stock, expanding or purchasing new premises or even urgent cash flow needs.
A customer can typically borrow up to 75% of the value of the commercial property/security, although UK Property Finance can potentially raise more depending on the applicant and the strength of the case as a whole.
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 30/35 years, if other arrangements have not been made, then 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 of knowing that if monthly payments are maintained as per the original agreement then at the end of the agreed term, the whole loan will be paid off.
Since the 2007/2008 credit crunch, recognised high street banks and lenders in the UK have grown fearful of Commercial Lending. The main reason for this is that after the crash many lenders wrote down the value of their commercial loan book as a large over supply in the commercial market meant that values plummeted much quicker and much further that 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 back to its feet. Challenger banks is the term used to describe unconventional lenders created to “challenge” the high street norm. These new band of lenders are not renowned as risky lenders but due to their set-up, they can more easily take a common sense view of a project as opposed to the “one size fits all tick box mentality” of larger high street institutions.