How to Finance the Purchase of a Commercial Property?

commercial property financing options

If you are a small business or a startup looking for a commercial purchase or renovating a property, capital may not suffice your needs. Investors and commercial developers should be familiar with commercial property financing options to deal smoothly. Qualifying for these options may vary, and you may not be eligible for every finance option. Review your finances and asset backup. Analyse the total money you need to purchase a commercial property.

Commercial financing options operate differently from residential purchases or development. The commercial one is used only to finance income-producing properties to operate a business. It can be REITs, official company space, etc. To qualify for financing options, the company must be an LLC entity.

The blog lists the best ways to finance a commercial property purchase. You can choose the one as per your requirements and asset availability.

6 best ways to Buy a commercial property

Finding the right source to finance a business property purchase is challenging. You should explore the options and choose the best one as per the flexibility. The option should align with your business and timeline goals. Here are some common ways to finance commercial property purchases:

1) Auction Finance

It is ideal to check if you will soon be a part of a commercial auction happening in the town. Auction finance helps get needed finance to purchase the property if one wins.

 The total money you qualify for depends on the value of the property. It is a bridging finance type where you complete the purchase within 28 days of the auction completion.  If you lack the money to fund the costs, the option can help.

2) Business loans

 If you are looking for a short-term property development or buy one, business loans can help. Unlike auction finance, you can tap these for any event. Whether it is about renovating a property, repairing one, or extending it, business loans can help. You can opt for secured and unsecured loans as per your credit.

It means you do not have to borrow against property as a security if your credit score and revenue meet the requirements. With fixed interest rates and repayments, you can pay it in easy instalments throughout the loan tenure.

With us, you can refinance your business loan and fetch lower interest and terms for fair credit.

3) Commercial Property Mortgages

Commercial mortgages are ideal for buying a commercial property. It is similar to a traditional mortgage, where one can borrow money against the property as collateral. Businesses may apply for commercial property finance if they plan to expand the business, conduct commercial property development, rent, or unlock equity with other owned buildings.

It is usually a long-term loan of 25 years. You may get around 70% of the property value as funds. You can pay the principal amount on fixed and variable mortgages as repayments. It is ideal for businesses to have sufficient capital to meet the payment commitment.

4) Asset-based financing

It is one of the popular ways to finance commercial finance. You can pledge your business assets in exchange for funds required for commercial property purchase.

 It is ideal for businesses having hefty assets like- business properties, renovated areas, equipment, investments, and equity to borrow against. Asset-based financing does not require any deposit, and you can borrow a flexible sum regardless of credit history. The total value of the asset pledged must be lower than the amount you need to finance a commercial property purchase.

For example, if you need £15m for a property purchase, the current value of the property pledged should be £20m (minimum). You may lose the property leveraged to get funds if you miss payments or default.

However, as leading brokers, we help customers ensure sufficient loan security by partnering them with the best lenders. Lenders do not impose or claim assets right away. Instead, grant a timeout to clear dues within a specific time.

  • Development Finance

Development finance solutions are ideal for businesses seeking commercial property purchase and development as a single solution. These loans help achieve both aims hassle-free.

 For example, if you want to purchase a property at auction and fund its development, the loans may be apt fetch. You may get the finance in the shortest possible time. It could be an ideal deal for businesses sharing time and budget constraints to finance commercial property objectives. There are multiple benefits of development finance for your commercial property:

  • You can borrow up to 90% of the total costs
  • Relish the flexibility to extend repayments
  • Leverage return on investment
  • Secure finance for properties unsuitable for
  • You do not need to make regular repayments. You pay a single payment by the term ends
  • Borrowing a lower percentage of Gross Development Value (GDV) helps you borrow more at low interest.
  • You do not need to pay a deposit

So, no wonder most businesses approach us for quotes from verified and affordable development finance lenders for their needs. If you have similar requirements regarding commercial property, approach us.

6) Commercial-Buy-to-let mortgage

It is unique from commercial mortgages as businesses may apply for this if they want to sell the commercial property after buying and renovating it to other businesses. This type of mortgage is also known as-

  • Commercial landlord mortgage
  • Businesses to let mortgage
  • Commercial investment mortgage

The amount you get here depends on how much monthly rent you may generate from the property. The rent should cover at least 145% of the mortgage payments. Having applications from prospective tenants can help you secure this finance quickly.

You may also get one on the empty commercial property if it generates income in a way like- hosting seminars, events, etc. The amount and interest rates you qualify for also depend on the deposit, credit history, and your expertise and experience in the industry.

You should be familiar with the legal document’s requirements besides the finance options.

What documents do you require on commercial purchases and development?

If you believe that any of the above commercial finance options meet your requirements, lenders may ask for the below documents. The document requirement may differ as per the lenders, but here are some basic requirements:

  • Planning permissions details
  • Breakdown of project costs
  • Work schedule broken by phases
  • Architects’ and contractors’ details
  • Proposed exit strategy
  • Gross Development value

Bottom line

These are some ways to finance a commercial property purchase. Before committing to the agreement, identify and review the property for any legal issues or development. The finance amount you qualify for depends on the affordability, agreement loan length, and credit score.

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