We are happy to answer any further questions you might have regarding business finance. Please call us today to see how we can help. Alternatively submit an enquiry and we will get back to you. Our advice is offered freely, in confidence and without obligation.
There are no hard and fast rules and each case is assessed on its merits. In general terms we advise our clients to be prepared to deposit in the region of 25% to 30% of the property or business value as a deposit. This leaves a loan to value (LTV) of 70-75%.
Mortgages for less favored assets such as pubs will generally be limited to 60% to 65% LTV. This is due to the higher risks associated with this sector of the market. Sitting tenants can often secure a higher LTV.
With property development loans there are many factors that are taken into consideration. The type of project being undertaken, the overall borrowing requirement and the anticipated profit margin. In addition, the developer’s experience, their financial standing and that of any main contractor will also count heavily towards the size of loan that can be advanced by a lender.
In general terms yes. If you are buying a business trading from freehold premises we will obtain a professional report to verify the overall value of the business, goodwill and fixtures etc. This value is often referred to as the ‘market value’ or MV1. Subject to satisfactory confirmation it is usually possible to secure an advance against this overall business valuation.
Where the purchase of a trading business also includes machinery, vehicles equipment and stock etc, it is generally more appropriate to structure a separate loan to acquire these assets on a short term lease or stock finance arrangement.
As a client of Fusion Finance you will have no fees to pay to secure an agreement in principle (AIP) offer from a mortgage provider as we offer this service free of charge. Once an AIP has been accepted by the client it will be necessary for you to schedule and pay for any valuation report(s) needed by the lender. The cost of these varies depending on the size and nature of the project. As a guide on commercial schemes we normally advise to budget £2 for every £1,000 of property value.
Once the valuation reports confirm that the loan proposition is positive, the lender will issue a formal offer, subject to legal due diligence. At this point a non-refundable commitment fee may be payable by the client to cover underwriting costs. However, this is generally deducted from the loan set up charges.
Some lenders will also require that their legal costs are also covered by the client. However, it is sometimes possible for the lenders solicitor to represent both parties which can keep costs down.
Finally, in addition to the interest charged on the mortgage or development loan there will normally be a set up fee of between 1% and 3% of the total loan value.
When a lender is assessing a mortgage application one of the key criteria that they will focus on is the applicants ability to afford the loan repayments. This is sometimes also referred to as a ‘stress test’. However, whilst many mortgages might offer an ‘easy start’ period on interest only terms it will eventually revert to full capital and interest payments and it is this larger amount that will be stress tested by a lender.
In assessing your ability to repay the loan a lender will look at the balance of your business costs against your income/profits as well as any other sources of confirmed income that you may have.
In situations where you are renting business premises and wish to purchase a freehold property, perhaps as a sitting tenant, then the rent you pay now will be assessed as an ‘add back’ when looking at your overall ability to pay for a commercial mortgage.
ERC stands for early repayment charges. ERCs are generally applied to longer term commercial mortgages in order to protect the lenders anticipated margin in case the loan is repaid early. ERCs can be 5% or more if a mortgage is paid back in the first year but usually fall to zero after three to five years.