In the intricate world of finance, terms like “corporate finance” and “commercial finance” often intermingle, leading to confusion about their distinct roles and purposes. In this blog post, we aim to demystify these terms, providing clarity on the differences between corporate finance and commercial finance and how they each contribute to the financial landscape.
Understanding corporate finance
Scope and focus:
- Corporate finance primarily deals with the financial decisions made within a corporation. It involves managing the capital structure, making investment decisions, and determining the company’s overall financial strategy.
- The focus is on maximising shareholder value and ensuring the company’s long-term financial health.
- Corporate finance encompasses decisions related to the company’s capital structure, including how to raise capital and the mix of debt and equity. This involves considerations such as issuing stocks, bonds, and managing debt levels.
- Corporate finance professionals evaluate potential investments, weighing factors such as risk, return, and the impact on shareholder value. This includes decisions about mergers and acquisitions, capital expenditures, and other strategic investments.
- Determining the company’s dividend policies falls under corporate finance. This involves deciding how much of the company’s profits will be distributed to shareholders in the form of dividends.
Understanding commercial finance
- Commercial finance, on the other hand, is broader in scope and focuses on providing financial solutions to businesses. It caters to the financial needs of a wide range of businesses, including small enterprises and large corporations.
Diverse financial products:
- Commercial finance encompasses a diverse set of financial products and services aimed at supporting businesses. This includes business loans, lines of credit, invoice financing, trade finance, and other tailored solutions.
- The primary goal of commercial finance is to provide businesses with the necessary funding to support day-to-day operations, expansion, and strategic initiatives.
- Commercial finance involves assessing the financial health and risk profile of businesses to structure financing solutions that meet their unique needs. It often includes risk-mitigating strategies tailored to the business environment.
Distinguishing between the two
Scope of operations:
- Corporate finance is more internally focused, dealing with the financial decisions and strategies within a specific corporation. Commercial finance, on the other hand, extends its services to a broader range of businesses, addressing their financial needs.
- Corporate finance decisions are typically made by the company’s executives and financial management team. In contrast, commercial finance decisions involve collaboration between businesses and financial institutions, or lenders.
Scale of transactions:
- Corporate finance often involves large-scale financial transactions, such as mergers and acquisitions, while commercial finance caters to businesses of varying sizes, including small and medium-sized enterprises.
In summary, the key distinction between corporate finance and commercial finance lies in their scope, focus, and target clientele. Corporate finance revolves around the financial decisions within a specific corporation, optimising its capital structure and investments. Commercial finance, on the other hand, provides a broader array of financial solutions to businesses of all sizes, supporting their operational and strategic needs. Understanding these differences is crucial for businesses seeking the right financial solutions to navigate the complex world of finance.
Martin Lewis is a renowned British financial journalist and consumer champion. He is the founder of the Moneysaving Expert website and is widely respected for his independent and impartial advice.
Lewis has spoken extensively about equity release, a type of loan that allows homeowners to access the equity tied up in their property. He has stated that equity release can be a useful financial tool for some people, but it is important to consider the potential risks and drawbacks before taking out a loan.
Lewis’s key points about equity release:
- Equity release can be a good way to access money to help you live a better retirement.
- Equity release is not a decision to be taken lightly, and it is important to seek professional advice before proceeding.
- Equity release can have a significant impact on your inheritance.
- Equity release is not suitable for everyone, and it is important to consider your individual circumstances.
Here is a more detailed look at Lewis’s views on equity release:
- Equity release can be a good option for homeowners who are asset-rich but cash-poor. This means that they have a lot of equity in their home, but they are struggling to make ends meet. Equity release can allow them to access this equity and use it to improve their quality of life.
- Equity release can be a good way to pay off debts or fund other large expenses. For example, some people use equity release to pay for home repairs, long-term care, or to help their children with a deposit on a house.
- Equity release can be a good way to supplement your income in retirement. If your pension is not enough to cover your living costs, equity release can provide you with a lump sum or a regular income stream.
Equity release is not suitable for everyone. It is important to consider the following risks and drawbacks before taking out a loan:
- Equity release can reduce the amount of inheritance you leave behind. This is because the loan is repaid from the sale of your property when you die or move into long-term care.
- Equity release can be an expensive way to borrow money. Interest rates on equity release loans are typically higher than standard mortgage rates.
- Equity release can have a negative impact on your credit score.
Lewis’s overall advice on equity release is that it can be a useful financial tool, but it is important to consider the potential risks and drawbacks before taking out a loan. He recommends that people seek professional advice from an independent financial advisor before proceeding.
Realistically, there are just two approaches you can take if you decide to refinance your home:
Take your business directly to your chosen bank or lender
Work with a trusted independent mortgage broker
While it is technically possible to access a good deal with either approach, working with a broker is guaranteed to save you time, effort and money. You need only consider the complexities of calculating your requirements and completing your application to understand the value of independent broker support.
If you choose to remortgage your home manually, this is how the initial process works:
- Establish the value of your property. You can get a basic indication of your property’s value using an online portal like Zoopla, though you may need to pay for a formal valuation your lender will accept.
- Calculate your equity. This means working out how much you still owe your lender, in order to determine how much of your property you actually own and how much of your mortgage is outstanding.
- Consider remortgage options. Irrespective of your requirements, you will need to choose between several types of remortgage loans: Interest-only, repayment, tracker, discount, fixed rate and so on.
- Compare the market. Before applying, you also need to conduct an extensive and comprehensive market comparison, taking into account hundreds of potential offers from dozens of competing lenders.
- Submit your application. Only then can you begin the formal application process, which includes provision of sufficient supporting documentation to verify your financial position and eligibility.
In a typical case, organising a refinancing deal independently takes approximately two months. If there are any delays or complications along the way, it can take significantly longer.
Working with a broker, the vast majority of the complications involved in applying for a refinancing deal are taken care of on your behalf. As an added bonus, your broker will also handle the negotiation process to ensure you gain access to an unbeatable deal.
As the vast majority of reputable brokers offer all the above free of charge (for the borrower), it simply makes sense to seek expert support at the earliest possible stage.
Remortgage or Equity Release
Equity release is becoming an increasingly popular option for UK homeowners looking to tap into the capital they have tied up in their homes. Likewise, anyone who has an existing mortgage can leverage their equity by choosing to remortgage. This basically means taking out a new mortgage that is bigger than their existing mortgage, in order to raise funds for any given purpose.
The important question being that when both options are available, which is best? If you intend to access the equity you have tied up in your home for any reason, should you remortgage your property or consider an equity release scheme?
Reasons for Releasing Equity or Remortgaging
Equity release schemes and refinance deals can be used to raise funds for almost any purpose whatsoever. With most people, the home you own is the single most valuable and important possession you will take ownership of.
Not to mention, an asset that can be used to secure a wide variety of financial products against.
Some of the most common reasons for releasing equity or remortgaging include funding home improvements, major extensions and renovations, second property investments, vehicle purchases and so on.
Rather than taking out a second loan to cover the costs, you instead ‘unlock’ the value of your current home to get a better deal.
How Do You Calculate Equity?
The equity you have in your home is calculated by subtracting your outstanding mortgage debt from the current market value of your home. In a typical example, if your home has a current market value of £300,000, and you still have an outstanding mortgage balance of £220,000, you have £80,000 of equity.
With most lenders, the amount of equity you have tied up in your property will influence your eligibility for financial support and the amount of money you can borrow. You may also find that depending on how much equity you have tied up in your home, there are various different options to explore when looking to raise funds.
Whatever your objectives and current financial position, it is essential to consult with an independent broker to ensure you understand the available options. Particularly if considering entering into a refinancing deal or equity release scheme, you need to carefully consider the advantages and disadvantages, before going ahead.
Remortgaging to Release Equity
One of the easiest and most affordable ways to release equity tied up in your property is to remortgage. Whether you choose to stick with your current lender or search for a better deal elsewhere, remortgaging is a good option for raising funds for almost any purpose.
This type of refinancing works by effectively ‘extending’ your existing mortgage and replacing it with a larger loan. You initially took out a mortgage of £200,000 and have subsequently repaid £70,000. You need to raise funds for a major home improvement project, therefore you replace your remaining £130,000 mortgage with a £180,000 refinance loan, subsequently freeing up £50,000 to fund the refurbishments.
In many instances, switching to a new lender can also result in significantly lower monthly repayments and a more competitive rate of interest for the life of your mortgage. Speak to an independent broker to discuss a whole-market comparison, if considering remortgaging to release equity.
An equity release scheme can also make it quick and easy to access the capital tied up in your home. The biggest difference being that with equity release, you effectively transfer ownership of your home (in part or in full) to a third-party lender. Subsequently, the money provided is repaid in full when your home is sold, either when you pass away or move into permanent care.
Equity release can be a good option for individuals and households who are ‘cash poor’ but ‘asset rich’. For example, you may live in a property with a value of £500,000 or more, yet have little to no savings or income at your disposal. Enrolling in an equity release scheme could allow you to access some or all of the money tied up in your home, while at the same time enabling you to live there rent-free (or for a small monthly ‘rent’ fee) for the rest of your life.
The downside of equity release being the way in which all such schemes will significantly reduce the value of your estate and your ability to pass your assets on as inheritance. You may also find that equity release impacts your state benefit entitlement and your tax position.
Under no circumstances should equity release be considered without first seeking expert advice from an independent broker or qualified financial advisor.
Independent Broker Support
By far the quickest, easiest and most cost-effective way to leverage the money tied up in your home it to seek the support, input and expertise of an established broker.
Along with helping you get to grips with the available options, your broker will work hard to negotiate the best possible deal on your behalf with a panel of specialist lenders across the UK.
If it is possible to switch to a better deal and save significant sums of money, refinancing is the obvious choice. Even when taking into account potential early exit fees and arrangement fees for the new loan, you could still reduce your immediate and long-term outgoings.
Nevertheless, the potential complications involved in refinancing can be off-putting for many. As can deciding when the precise moment comes to go ahead and refinance.
Why Should I Remortgage?
Some motivations for remortgaging a property are more obvious than others. Every refinance customer has their own unique priorities and objectives, though the following represent the most common reasons for remortgaging in the UK:
1. Your current mortgage deal (or introductory rate) is coming to an end, and you would like to start a new deal elsewhere.
2. You want to switch to a new provider who has offered you a much lower rate of interest than your current lender.
3. You would like to release some equity tied up in your home in a convenient and cost-effective way.
4. Furthermore, you intend to pay off your mortgage earlier than initially planned to save money on the life of the balance.
5. You want to switch from an interest-only mortgage to a standard repayment mortgage.
6. You are in any way dissatisfied with your current lender and would like to switch to a new deal elsewhere.
Far too many mortgage customers across the UK simply ‘accept’ that they are locked into a deal they are not happy with, without realising how quick and easy it can be to switch to a new deal with a new provider.
If you are in any way dissatisfied with your current mortgage or believe you could save money by switching, it is in your best interests to do so at the earliest possible juncture.
When Should I Remortgage?
In any instance where remortgaging could save you money, the sensible time to do so is as quickly as possible. The longer you remain locked into an uncompetitive deal, the more money you needlessly waste.
This is why one of the most common times to shop for a remortgage is when the introductory period of an existing mortgage comes to an end.
In a working example, your lender may offer you an introductory rate of 2% for the first 36 months, after which your loan will shift to the bank’s standard 5% variable rate of interest. In which case, switching to a new provider towards the end of this initial 36-month period could mean starting a new loan with a new introductory (or permanent) rate of interest far lower than 5%.
Refinance with the right deal at the right time, and it is possible to save thousands of pounds a year for the entire life of your mortgage.
If your intention is to raise funds for a property improvement project or a major expense, it is simply a case of establishing the affordability or otherwise of the loan.
As you cannot always rely on any specific bank or lender to provide the objective and impartial advice you need, it is advisable to consult with an independent broker to discuss the available options.
Use an online remortgage calculator to assess the affordability of the loan you need, before booking an obligation-free consultation to discuss the next step. If you choose to go ahead, your broker will handle all aspects of the market comparison and refinance negotiation process on your behalf.
October 2021 saw the lowest level of mortgage application approvals since the middle of 2020, primarily due to the end of the stamp duty holiday, according to figures released by the Bank of England.
BOE data shows a total of 67,200 homebuyer mortgages approved in the month of October, a drop from 71.851 and a significant decrease from 104,547 reported in November last year.
The report also indicated a sharp fall in amounts advanced to buyers during the month, showing a net mortgage lending figure of £1.6 billion, a drop from £9.3 billion recorded in September.
The fall follows months of frenzied property buying, with figures for the year up to September for property sales reaching £500 billion, largely due to the stamp duty holiday. The tax break led to a rush for buyers to complete before the deadline date at the end of September. The pandemic also changed the priorities of buyers, with many seeking larger properties.
“October’s decrease was driven by borrowing brought forward to September to take advantage of stamp duty land tax relief before it was completely tapered off,” the Bank of England commented.
October saw an increase in re-mortgaging activity as lenders competed for clients by offering ultra-competitive deals. The month saw a total of 41,642 remortgages approved, up from 32,745 recorded in the same time period in 2020.
The head of residential research at the property firm Savills, Lucian Cook, stated: “There is no great surprise to see a fall in the number of mortgage approvals in October, given the distorting effect of the end of the stamp duty holiday in September.”
His data showed that £513 billion was spent in the UK property market in the year up to September. This is the first time this figure has exceeded the £500 billion mark and is £170 billion higher than pre-pandemic levels.
“That reflected the unusual coming together of three key factors: the so-called race for space as people looked to trade up the housing ladder, the cheap cost of mortgage finance, and the added impetus of a stamp duty holiday,” he commented.
“Activity in the more expensive price brackets continues to hold up strongly, so we expect to see higher than normal spend in 2022, though it’s difficult to see how spending next year can match the extraordinary levels of lateness across the market as a whole without such a mix of strong drivers.”
Housing analyst and Chief Executive of Twin dig, Anthony Codling, commented that he thought the BOE’s figures for mortgage approvals were “comforting” and indicated that the property market was moving back to normal levels following the end of the stamp duty holiday.
“At 67,199, mortgage approvals in October were 2.7% ahead of their 10-year average, suggesting that the housing market is a long way away from the cliff edge,” he said.
The tale is not only about big ideas and governmental policies when it comes to fostering economic growth and propelling real estate development in the United Kingdom. The financial instruments that were essential in making these large-scale initiatives a reality are also part of the discussion. Bridging loans is one such instrument that has significantly altered the landscape of development financing.
The idea behind a bridging loan is straightforward yet tremendously powerful. It’s a form of short-term financing used to fill the space between two significant financial transactions, generally the acquisition of a new property and the sale of an existing one. In the field of development, where timing is frequently the difference between embracing a potential opportunity and missing out, this financial bridge has proven to be of immeasurable value.
Bridging loans were first used for development finance during the 1980s real estate boom in the United Kingdom. As the property market expanded, developers and investors faced the same problem: they needed funds to buy new homes while waiting for their old ones to sell. Traditional lenders were sometimes slow to respond to these requirements, leaving a gap that needed to be filled. The bridging loan found its place in this gap.
Bridging loans gained prominence as a flexible and fast solution for property developers and investors who were looking to capitalise on the booming real estate market. These loans provided the financial flexibility needed to move quickly, make timely offers, and secure properties before other buyers could swoop in. This advantage proved critical in a competitive market where opportunities could vanish in the blink of an eye.
Over the years, the use of bridging loans for development finance has continued to evolve. The financial industry has become more sophisticated, with specialised lenders offering tailored bridging solutions for various development scenarios. From residential projects to commercial ventures, bridging loans have become a reliable tool for funding development initiatives across the UK.
Additionally, the successes made possible by bridging loans have strengthened their standing in the field of development financing. Along with assisting individual investors and developers, they have also helped the real estate industry as a whole thrive, generating employment and bolstering regional economies.
In recent years, as the UK has navigated through economic ups and downs, market uncertainty, and the difficulties brought on by unanticipated occurrences, the significance of bridging loans in development finance has become even clearer. Bridging loans has become a lifeline for people trying to take advantage of possibilities despite the constantly shifting environment due to their flexibility and accessibility.
Looking ahead, the experience of involving bridging loans for development finance in the United Kingdom demonstrates resilience, adaptation, and the capacity for financial innovation. It’s a story that highlights the critical role that these loans have played in shaping the development landscape, and as new opportunities and challenges emerge, it’s safe to say that the bridging loan will remain a valuable asset in the toolkit of those driving growth and progress across the country.
Imagine this: After months of looking at different homes, you finally locate the one you’ve been looking for. Everything about it is ideal: the generously sized rooms, the beautiful surroundings, and the picturesque garden. You can immediately picture yourself living in this new location. There’s just one problem: your present house hasn’t yet been sold. Due to time issues, the worry of losing this dream house starts to surface.
Here comes our story’s main character: the bridging loan. Selling your old home and buying a new one are separated by this crucial financial lifeline. It functions as a bridge that lets you move between properties without worrying about timing everything quite right.
When you acquire a bridging loan, you are not constrained by the restrictions of regular financing. Making an offer on a new house does not have to rely on the sale of your previous one. Your increased independence provides you with an advantage in a competitive property market when properties are in great demand and every second counts.
Think about how much easier your life would be if you didn’t have to sell the old house before you purchased your new one. The bridging loan gives you the opportunity to take charge of the situation and achieve the desired result.
Of course, every story has its considerations. It’s essential to understand the terms of the bridging loan, the interest rates, and the repayment plan. Like any financial decision, thorough research is a must. Choose a reputable lender who is transparent about the terms and offers competitive rates.
What could have been a frustrating odyssey was ultimately transformed into a smooth transfer thanks to a bridging loan. It’s the instrument that makes purchasing a property simple, especially when negotiating the tough logistics of juggling the sale of your current residence with the acquisition of a new one. So, when you start your house-hunting trip, keep in mind the bridging loan, a useful ally that enables you to make your ideal home a reality.
You’ve undoubtedly heard of commercial loans as an opportunity to obtain money for your business if you’re a business owner or an aspiring entrepreneur. Although a commercial loan can alter the course your business takes, it also comes with a variety of difficulties. At UK Property Finance, we will provide you with a realistic picture of what to expect when contemplating this type of borrowing.
The pros of commercial loans
- Access to Capital: Perhaps the most obvious advantage of commercial loans is their access to a substantial amount of money. The influx of capital can be a lifeline for any business.
- Versatile Funding: One of the great things about commercial loans is their versatility. The funds can be used for various purposes, from purchasing equipment and property to covering operational costs or even refinancing existing debt you may have.
- Potential Tax Benefits: In many cases, the interest paid on commercial loans is tax-deductible.
- Building credit: Successfully managing a commercial loan can help establish or improve your business’s credit profile. This opens doors to better financing opportunities down the road.
- Extended Repayment Periods: Commercial loans often come with longer repayment periods compared to short-term loans. Giving your business more time to generate revenue will result in a healthier cash flow.
The cons of commercial loans
- Interest Costs: It’s not all sunshine and rainbows. Commercial loans include interest rates, and these rates might be significant depending on your creditworthiness and the lender.
- Security Requirements: Many lenders require security to secure a commercial loan. This means you may have to put up valuable assets, such as a property or some form of equipment. If you don’t repay the loan, you risk losing those assets.
- Stringent Qualification: Getting approved for a commercial loan isn’t a walk in the park. Lenders typically have strict criteria, including credit score requirements and detailed financial documentation. Start-ups and businesses with limited credit histories may find it particularly challenging.
- Overleveraging Risk: Taking on too much debt with a commercial loan can be risky. Overwhelming financial commitments might limit your company’s potential for development and put it in danger.
- Long-Term Commitment: Commercial loans are usually long-term commitments that can extend for several years. This long-term commitment could restrict your ability to change with the times or take advantage of fresh chances.
In conclusion, commercial loans may be a useful instrument for supporting the expansion and success of your company. They do not, however, offer a universally applicable answer. Consider your company’s specific requirements and circumstances while carefully weighing the advantages and disadvantages. Before deciding, speak with financial professionals and consider your choices. In the end, a carefully thought-out commercial loan may be a step towards realising your business goals.