How to approach finance for a commercial property


Approaching a bank for finance is nobody’s idea of fun. However, the benefits of such a trip can be enormous. Getting into debt is sometimes a necessary step to fulfilling your dreams.

If your dream is to reap the rewards of a commercial property venture, then you’ll be surprised to learn just how straightforward it can be. With a little bit of backing and lots of determination, you’ll soon be expanding your own empire.

How does commercial property work?

Commercial property funding essentially comprises of two things: the cost to buy the property and the cost to develop that property.

Collectively, we call these ‘the costs’ and they include all legal and professional fees.

So, it’s fair to say that funding your new property from a big-picture perspective is quite simple.

Where it can get complicated is the level of finance you get offered, the level of risk involved by lenders and figuring out how to raise the equity needed alongside the loan.

To start with, we’ll take a look at where you can find development finance

Development finance

The good news is that, provided you have a realistic ambition, you should be able to find someone willing to offer you development finance. This finance is available from more than just the standard banks, and a quick google search will show you a long list of specialist lenders competing for your business. As your trusted advisor in this process, we are always happy to offer recommendations here, depending on your needs.

Development finance rates are typically between 6% and 9% but if you’re starting out these will usually be at the higher end of the scale (or higher still), as you’ll represent a bigger risk to them.

Risk will also be a factor when we look at the loan to cost

Metrics used by banks

Generally, though, a lender can be prepared to fund up to 100% of your development costs and up to 50% of your property costs.

As well as your experience, they will also consider things like its location and planning permission for development etc. In fact, a big mistake you can make here is to purchase the building and look for funding without planning for your development, so be sure to have this factored in before you approach them.

Other lending mechanisms

Aside from a Loan To Cost mechanism, some lenders may also use a Loan To Value (LTV) or a Loan To Gross Development Value (LTGDV). This means they will calculate the value of your finished development in the open market.

Whatever is used, it’s important to note that financing your project doesn’t have to be the complicated beast you think it will be.

Here at Platinum Property, we’re always happy to help with any part of the property process. Click below to find out more

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