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Applying for commercial property funding

Commercial mortgages and bridging loans are invaluable tools for the owner of any business, whether a start-up or an established company looking to expand or increase cashflow. Once you have found a commercial property (or if you already own premises and have decided to secure additional funds against them) you can follow the steps below to apply for commercial funding.

1. How much do I need, and how much can I afford?

These are the two questions you need to ask yourself before the application begins in earnest. How much do you need for your venture, and will you be able to afford to make the repayments?

If you are funding a residential or commercial letting business, affordability will be based on a rent to interest (RTI) calculation, more commonly and simply known as ‘rental cover’. The rent you charge your tenant must cover the interest payments of your loan by a certain amount.

If you are running the business yourself, your expected operational income will determine your affordability. Many commercial lenders prefer you to have experience in the industry sector you are investing in, and you should be able to support your application with accounts and a business plan.

You will also need a plan to repay the principal of the loan at the end of the loan term. This could be through the sale of the asset against which the loan is secured, or through another vehicle. Alternatively, you could opt for a part or full repayment plan.

2. Check your credit profile

A clean credit profile is vital for most mortgage applications. Anything from historic CCJs to credit arrears will count against you, and limit your choice of funding to a handful of ‘sub-prime’ lenders.

Before you begin your application, check your credit profile through one of the three main credit referencing agencies:

Each of the agencies gathers different details. It appears from consumer experience that more lenders use Equifax and Experian than Callcredit 1, so prioritising these agencies when polishing your credit history might be a good idea.

Armed with your credit report, you can go through it with a fine-tooth comb and highlight any elements that might jeopardise a funding application. If there are any inaccuracies, errors or simply discrepancies you wish to explain further, you can also apply to add a short explanatory note (called a ‘notice of correction’) to your report.

If you do wish to add such a notice, it is recommended that you contact each of the referencing agencies to ensure that they all hold the correct information.

Note: Certain discrepancies, such as repaid CCJs or arrears over a certain age, may qualify you as a ‘near-prime’ customer – essentially, someone who has had credit difficulties in the past but is now on top of them. Near-prime customers can generally access a wider range of deals than sub-prime customers.

3. Contact an advisor

A commercial mortgage broker or bridging introducer will help you find the most fitting product for your circumstances, and some will also help prepare your application. Because many commercial mortgages are bespoke products that offer flexible terms, the market expertise of a broker can be invaluable.

During this initial stage of the application, you will be quizzed about your objectives and requirements. You will also be asked about your income. It is vital that you disclose information as fully and accurately as possible, in order to maximise the chance of your application being accepted.

4. The ‘decision in principle’

If your advisor finds a suitable lender, they will approach them to obtain a ‘decision in principle’ (DIP) – a provisional agreement to provide funding, pending a successful application. You will then be provided with more detailed information on the product, and how to take progress in your application.

5. The application

Once you begin your application, you and any other applicants will be required to provide supporting information, including proof of identification, proof of residence and proof of income.

  • Employed applicants will usually be asked for 1–3 months’ payslips and/or a P60
  • Self-employed sole traders will usually be asked for 1–3 years’ tax returns or an SA302 summary form, 2–3 years’ accounts and a statement of assets and liabilities
  • Limited company applicants will usually be asked for 2–3 years’ audited accounts and a statement of assets and liabilities for each applicant

Your lender may also request to see bank statements.

You may also be asked to provide additional information, such as:

  • Management figures
  • Profit and loss forecast
  • Business bank statements (if applicable)
  • Information on partners and directors (if applicable)

Some lenders may charge fees at this stage, including a (usually non-refundable) booking fee. Many fees can be deducted from the principal of the loan, or added to the total loan amount (subject to borrowing restrictions).

6. Assessment and valuation

Your chosen lender will then assess your application and instruct a valuation of the property against which you are securing funds. You may have to pay the valuation fee.

You will also need to instruct a conveyancing solicitor to handle the transfer of property ownership and other legal work. Many lenders require you to use a conveyancer from their own approved panel.

If your application is successful, you will receive a formal offer from the lender. Your and the lender’s solicitors will coordinate the transfer of funds, and your mortgage application will be complete.

Written by Ben Gosling for specialist commercial broker Commercial Trust.

Remember to keep up repayments on your commercial mortgage or bridging loan; your property may be repossessed if you do not keep up repayments on any debt secured against it.

The FCA does not regulate some forms of commercial mortgage and bridging loan.

[1] http://www.moneysavingexpert.com/credit-cards/credit-reference

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Insolvency Series: Rescue option 3 - pre-pack administration or trading administration

This week, our PDF guide looks at the powerful restructuring tools, pre-pack administration and trading administration. If your business has been threatened with legal action, administration can stop it in its tracks.

Pre-pack administration is often seen as controversial, however it is usually a far better option than liquidation which means the end of the business. 

Take a look at the benefits of pre-pack administration for yourself in our guide.

Asset based lending at all time high for SMEs

Not surprisingly, asset based lending and invoice finance are becoming increasingly popular with the SME community as an alternative to traditional bank loans.

According to the latest report from the Asset Based Finance Association (ABFA), £18.9 billion in loans were given to businesses between April and the end of June. Asset based lending and invoice finance is up 10% from last year, with the majority of SMEs opting for the latter. 

Chief Executive of ABFA, Jeff Longhurst, said “We are seeing more and more businesses of all sizes and types taking advantage of invoice finance to fuel their growth, particularly as more traditional forms of lending remain subdued”. 

Longhurst further commented, “What’s becoming increasingly clear is that asset-based finance such as invoice finance in particular, is the alternative to traditional lending for SMEs that the Bank of England and the Treasury have been looking for.”

Alternative lending, including peer-to-peer loans and crowdfunding, is definitely here to stay as SMEs struggle to find the funding they need. More competition for banks can only be a good thing. 

Insolvency Series: Rescue option 2 – Company Voluntary Arrangement (CVA)

This week focuses on the Company Voluntary Arrangement, a powerful rescue tool used to help companies restructure and turn their business around.

A CVA has a number of benefits, including stopping legal actions and easing creditor pressure. Find out more in our CVA guide

Director of two accounting firms banned for 13 years for poor record keeping

Bernard Vincent Haskell has been disqualified as a director for 13 years after failing to keep adequate financial accounts and records. 

He is the director of two accounting firms, Haskell Woolfe Limited and Haskell Woolfe Accountants Limited, both of which went into liquidation in July 2012 and February 2013 respectively. 

The Insolvency Service found Haskell has failed to provide proper financial accounts when Haskell Woolfe Accountants went into liquidation. Even after a court order, he provided little information. By law, directors must supply sufficient financial information to liquidators upon their request. This ensures any wrongdoing or fraudulent activity can be traced. In this case, Mr Haskell, failed to comply which led to his disqualification.

It was also found that some of the records given contradicted those already in the possession of the liquidator. 

The investigation discovered both companies were behind VAT payments, owing over £260,000 to HMRC. Overall debt owed by the companies came to £750,000. 

Robert Clarke from the Insolvency Service commented, “Directors have a clear, statutory duty to ensure that their companies maintain proper accounting records, and, following insolvency, deliver them to the office-holder in the interests of fairness and transparency. Companies have limited liability, which is a privilege, not a right. If directors operate outside the legal rules, the privilege will be withdrawn, as Mr Haskell has found out.”

Inflation Falls Unexpectedly

Inflation has fallen more than expected  to 1.6% down from 1.9% .  The cost of clothing, footwear, food and non-alcoholic drinks contributed most to the fall.   It may well fall further as the cost of petrol is also falling with oil price at a 10 month low.  

The pound has fallen against most major currencies and will no doubt push back even further the prospect of a rate rise.   Recent talk of a pact between Osborne and Carney to keep interest rates low until after the election will most likely die away if inflation remains significantly below the Bank of England's inflation target.  What is more, wage growth is still at low levels across the economy with rises of only 0.6% over the last 3 months.

What will be the effect of this continuing environment of low interest rates?

  • Asset prices will continue to rise modestly, most particularly housing, as some heat had been taken out of the market with expectations of a rate rise.  Also the cheap pound will encourage capital inflows.
  • The search for a return on investment will see more lending to businesses, particularly in the field of asset based lending and crowd funding.
  • The incumbent government will continue to reap the benefits of a "stable economic environment" leading up the election.
  • Businesses will be able to service historic debts more easily
  • UK will receive a tourism boost!

Until there is some some wage growth and the loss of spare capacity in the economy it is unlikely there will be any rate increases for some time.  

What is more interesting is what is happening on the European Continent.  Italy is back in recession, Germany and France are flat lining and deflationary pressure are building.  This may yet cause further weakening in our own economy.  Watch this space.  Has the Eurozone crisis completely gone away? 

Hereford United: CVA rejected

The proposed CVA for the troubled football club was rejected yesterday at the creditors meeting. They now only have until 1st September to pay back the debt or the club will be wound up by the courts.

HMRC, who is owed £170,000, rejected the proposal. It's looking likely the club will be liquidated if the directors can't come up with the money.

Insolvency Practitioner, Mark Landsman of Carmichael & Co oversaw proceedings and worked with the club and its creditors to try to reach an agreement. However, without the right financial support, the CVA could not work.  

Matches will continue to be played, including tomorrow's game against Dorchester Town. 

Insolvency Series: Rescue option 1: Time to Pay (TTP)

This week in our Insolvency Series blog, we look closer at one of the first options available for struggling companies.

We call Time to Pay the informal ‘plan A’ as it should be the first port of call for businesses entering insolvency. If you're unable to keep up with tax payments like VAT or PAYE, a Time to Pay deal may be the best solution. As it is an informal deal, legal costs may also be avoided.

Click on our guide for more information:


How corporate debt enforcement has changed - the review

Back in April, the law surrounding distraint, walking possession and certain legal actions completely changed. This change aimed to create a fairer process for businesses and commercial tenants, ensuring debt enforcement was handled in a more transparent way. 

Barrister Eirlys Lloyd of KSA has observed these latest changes and provides detailed reviews on the new systems, taking a close look at the impact on both debtors and creditors. 

Click below for the full articles:
The modernisation of the law relating to corporate debt enforcement
Corporate debt enforcement - HMRC
The introduction of Commercial Rent Arrears Recovery (CRAR)
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