Property finance in business covers both property development projects or property purchases that are intended either to set up another source of profit or for the buying business’s occupancy.
Studies have shown that the United Kingdom’s property market remains attractive for investment opportunities. This perception stays amid ongoing Brexit concerns, and as such, continues to boost the number of companies and individuals scouting for financial sources to penetrate the UK’s property market.
Meanwhile, owner-occupant property purchases or developments remain essential for businesses who regularly use a workspace or is in need for a storage warehouse for their goods.
However, there has been a growing misconception that startups will soon make properties disposable. While it’s true that startups’ assets are largely non-physical such as patents, there has been a shift toward these so-called flexible workspaces which are proving that the property market remains relevant to these tech-driven businesses.
There are several means available for your company to own a property. You can also choose from a wide array of large-scale financing vehicles that can cater to your needs whether you are borrowing as a company or an individual trader.
Developing a property from the ground up
If you can’t find a readily available property that fits your standard, you can always build your own from scratch or buy a buy one with the basic structure for you to merely renovate.
While experienced developers or builders always easily get access to loans, there are several lenders open to financing first-time developers so long as the proposed projects are feasibly profitable.
A property development loan can cover even early stage activities such as the purchase of a lot intended for the project’s location.
The lender can release up to 70% for the purchase of the property and up to 100% for the construction expenses. The release of construction costs is on instalment basis and throughout the construction of the project.
Development loans tend to have shorter repayment terms as against mortgages, with the contract life usually spanning three months for light refurbishments and two years for larger projects.
Purchasing a ready-built property
If starting a property development project sounds too daunting for you, simply buying out an already built-up property is always a good option especially if there is an urgent need for space.
Buying out the property you have been leasing as your office is also a good strategy, especially if you see yourself in the business for a long time.
There are two common ways of funding that businesses seek when purchasing a property:
In a commercial mortgage, lenders release up to 75% of the purchase price while you pay for the rest. The purchase bought serves as collateral which lenders can take from you if you falter in your payments which can be extendable up to 20 years.
Lenders can also cover the remaining balance if you can give additional assets to pledge as collateral. In this case, you’re getting a mix of a mortgage and a loan.
A commercial mortgage is designed for the purchase of a property intended for commercial use which can go in two ways:
Owner-occupied: here, businesses who purchase the property will also be the occupants
Buy-to-let mortgage: made for investors eyeing a share of the property market by purchasing a residential, commercial, or mixed-use property and letting it out for lease.
A bridging loan refers to interim financing that gives a borrower quick access to cash pending a larger transaction that will cover for the so-called bridging loan.
Concerning property, a bridging loan sits in the middle of a property development financing and a commercial mortgage.
Tailored for short-term payment agreements, bridging loans are tapped when buying a property that is priced below the market but could still fetch a higher value after a certain degree of refurbishments— usually properties sold in auction or foreclosed by banks.
Lenders can pay for the total cost in purchasing the property as well as your total refurbishment expenses.
· While property financing products vary from one to another in many aspects, all share the same standard when it comes to looking at the core basis of the planning and feasibility behind the project proposed for funding: location, location, location! Ensure that the chosen area is a hotspot for traffic to pull in as many customers your business can serve.
· Even as annual interest rates may be at the low single-digit— which is true especially for longer-term borrowings such as commercial mortgage and property development loans—there are several fees to consider aside from interest rates, and you should discuss this thoroughly with your chosen lender.
· If the market for property finance is too broad that you find it hard cherrypicking the best, it’s better to deal with a broker for you to know which one suits you best. In the case of newbie investors and businesses, lenders tend to be more accommodating when borrowers partner with expert brokers.