Types of Property Finance
- Commercial Mortgages
- Development Finance
- Bridging Finance
A commercial mortgage is a type of loan provided by a lender to a borrower that is secured by a legal charge over commercial property. Mortgages are attractive products which can be used to achieve a wide range of objectives such as contributing towards the purchase of commercial property, releasing equity to grow or invest in your business, refinancing to benefit from a lower interest rate or monthly repayments and consolidating existing debts into one manageable monthly payment.
Development finance is a term for loans used to support the costs associated with a residential or commercial development project. Unlike long-term property mortgages, development financing is typically short-term, with lifecycles in the range of 6-24 months. Loans can be used to buy land and pay for construction costs, and they are suitable for ground-up new builds, conversions or refurbishments of existing properties.
The major difference between a mortgage and a bridging loan is that while a traditional mortgage lender will focus on the ability of the applicant to maintain payments on the loan, a bridging lender focuses more on the property and its suitability as security. When a bridging loan is approved most lenders will build in an interest reserve facility which allows them to take payment on the loan over the term without committing the borrower to make a monthly payment.
This provides the lender with the surety that the interest will be paid on time and provides the borrower with the comfort they don’t need to make payments that may be impossible due to cashflow constraints.
The priority for bridging lenders is the exit strategy as this is how they will get repaid: the key question for the lender is: “What will change during the term of the loan to allow the borrower to repay the loan?” Usually this means that bridging loan exits are via re-mortgage to a conventional lender or sale of the property utilised as security
A term loan refers to a fixed-term loan that can last up to seven years. You receive the full amount, then you just repay the loan and interest in monthly instalments.
Term loans are a popular option for small business owners as they are able to gradually reduce the amount they owe without having to fork out a great deal of money all at once.
An interest-only loans can last up to five years and businesses are often able to borrow anywhere between £25k and £20m. With these types of loans, you need to pay monthly interest as well as a final, larger payment to fully cover the loan amount.
What is property finance?
Property finance loans are typically short-term loans and are great for giving businesses quick cash access to develop and grow. Property finance loans often cover the costs of converting an existing property or developing your business. It is normally advanced as a loan, or alternatively secured against your current business property or land assets.
Why is property finance important?
Property finance is a great choice for lots of business owners because it is considered one of the most straightforward funding options available. This kind of finance is quite similar to a secured business loan.
When business owners opt for property finance, it means they secure the loan against their residential or business property. Property finance is a plausible option for businesses that have strong potential to grow and develop but don’t have a huge amount of money to spend on achieving their goals.
What are the different types of property finance?
There are a few different types of property finance and the option you choose will depend on your business, its size, your existing properties and your business goals.