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Commercial funding for start-up businesses

4th August, 2017
Keith Steven

Written ByKeith Steven

Managing Director

07879 555349

Keith is the author of the content on this comprehensive rescue, turnaround and insolvency website. He has expert knowledge on the company voluntary arrangement (CVA) mechanism

Keith Steven
  • Secured commercial funding for start-up businesses
  • Bridging loans
  • Commercial mortgages

Secured commercial funding for start-up businesses

One of the biggest hurdles for a fledgling business is raising the required capital. The traditional small business loan can be expensive and inflexible, and even with the Funding for Lending Scheme (FLS) helping to coax high-street banks into granting more loans to SMEs, it remains notoriously tricky to get an application approved.

The commercial finance market has ballooned in the years since the financial crisis. The bridging loan market in particular has gone from strength to strength, as short-term lenders have been able to fill the rift left by mainstream lenders reluctant to expose themselves to post-crunch risk.

With new entrants into the market jostling for business, products invariably become more competitive in terms of cost and flexibility. Products have even homogenised to a degree, with specialist buy-to-let and commercial lenders offering short-term options and bridge-to-let loans allowing borrowers to ‘term out’ to longer-term finance once the loan comes to an end.

Here we will take a broad look at these two types of commercial funding.

Bridging loans

Bridging loans are so named for their ability to bridge the gap between a debt becoming due and credit becoming available, and can be turned around within a matter of days. The funds can also be raised for any legal purpose, meaning that anyone who can offer suitable security for a loan can use one to get cash fast.

This makes bridging loans extraordinarily versatile; they can be used to circumvent property chains, expand business premises, purchase additional stock, convert or renovate property, plug cashflow gaps and take advantage of short-lived investment opportunities such as auction purchases. Terms can be as little as one day, and it is possible to find bridging loans with no early repayment charges from which you can make a quick exit with no additional cost.

A bridging loan is either ‘open’ or ‘closed’. This refers to whether or not the loan has a fixed end date and exit strategy (such as further credit or the sale of the asset) in place. Whilst open loans – those without a fixed end date – are riskier and, as a result, more expensive, rates for either option are far cheaper than they were pre-crunch, ranging from around 0.65% to 1.50% per month.

Although not every bridging lender will fund every type of deal, across the entire market it is possible to secure funding against almost any kind of property, including undeveloped or agricultural land, uninhabitable property, non-standard construction and commercial or semi-commercial property. The funding can be secured as a first charge – meaning the lender has first or sole priority for repossession if you default on your debts – or second or subsequent charge.

It is also possible to secure a bridging loan against more than one property; indeed, by offering additional security, you can increase the LTV (loan-to-value) ratio of the loan to 100% or even higher, removing the need for a cash deposit.

Most bridging loans are not regulated by the Financial Conduct Authority (FCA). However, if 40% or more of the property is intended for occupation by the borrower or borrower’s family, this will be classed as a residential bridging loan and will therefore be regulated.

Commercial mortgages

Commercial mortgages are intended to finance the purchase of commercial or semi-commercial property, with loan terms lasting from 3 years to 30. Commercial mortgages can be used to fund up to 75% of a property purchase but, like bridging loans, it is possible to increase this figure by offering additional security.

Many commercial mortgage borrowers are looking to rent out their property to commercial tenants, rather than run the business themselves. In these cases, most lenders insist that the rent charged covers the interest repayments by a minimum of 125%. Either way, it may well be a requirement that you have some hands-on knowledge or experience in the industry you are targeting.

Commercial loans are extremely flexible and tailored to the borrower. It is not uncommon for customers to finance entire property portfolios, worth millions, with a single commercial mortgage. Mortgages are underwritten on the basis of both the strength of the borrower and the viability of the asset; in short, lenders are not always beholden to rigid criteria.
Like bridging loans, the FCA does not regulate most commercial mortgages.

Key differences


Bridging loans are short-term loans, rarely lasting longer than 18 months. Commercial mortgages typically last for a minimum of 3–5 years, and as long as 30.

Application process

More information is usually required for a commercial mortgage application than for a bridging loan application. A lender will request borrower credentials – income and expenditure, assets and liabilities, proof of income, tax returns, company management accounts and a summary of the borrower’s relevant experience – as well as details of the property or properties to be mortgaged. Bridging loans generally require just an application form from the applicant and a valuation of the property, meaning the process is far quicker.


Whether or not the interest charged on a bridging loan will be higher or lower than a commercial mortgage will depend entirely upon the individual circumstances of the borrower and the nature of their application. Commercial loans do tend to have lower interest rates; however, because the loan terms can be significantly longer, it is likely that you will still pay more interest in the long run.

Your property may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it.

Written by Ben Gosling for Commercial Trust, a dedicated broker for bridging loans, buy-to-let mortgages and commercial mortgages. For more information visit

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What Is A Winding Up Petition By HMRC or Other Creditor

A winding up petition is a legal notice put forward to the court by a creditor. The creditor petitions to the court if they are owed more than £750 and it has not been paid for more than 21 days. The application, in effect, asks the court to liquidate the company as they believe the company is insolvent.

What Is A Winding Up Petition By HMRC or Other Creditor

Notice of Intention To Appoint Administrators

A notice of intention to appoint administrators is when the company files a document to the court to outline that it intends to go into administration if a solution cannot be found to its immediate financial problems. It can be used as part of the pre-pack administration process as well as used to restructure a failing business to avoid its liquidation.

Notice of Intention To Appoint Administrators
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What Does Going Into Administration Mean?

Going into administration is when a company becomes insolvent and is put under the control of Licensed Insolvency Practitioners.  The directors and the secured lenders can appoint administrators through a court process in order to protect the company and their position as much as possible. Going Into Administration - A Simple Guide Administration is a very powerful process for gaining control when a company has serious cashflow problems, is insolvent and facing serious threats from creditors. The Court may appoint a licensed insolvency practitioner as administrator. This places a moratorium around the company and stops all legal actions.The administration must have a purpose and the Government encourages the use of company rescue mechanisms after administration. The 3 purposes (or objectives) of Administration Rescuing the company as a going concern. (Note: this purpose is to rescue the Company as opposed to rescuing the business undertaken by the Company.)Company rescue as a going concern – this is usually a  company voluntary arrangement. The company enters protective administration and is then restructured before entering into a CVA. The CVA would set out proposals for repayment of debts to secured, preferential and unsecured creditors. When the company has its CVA approved by creditors, then the administration process comes to an end after 28 days. Achieving a better result for the company's creditors This is as a whole than would be likely if the company was to be wound up (liquidation) See the differences between Administration and Liquidation.  This better result is usually obtained by selling the BUSINESS as a going concern to one or more buyers. The company and the debts are “left behind”. The better result may include securing transfer or employees under TUPE, as well as selling goodwill, intellectual property and assets. Controlling and then selling property/debtors. This is called realising assets. Then the administrator makes a distribution to one or more secured or preferential creditors, in order of creditors priority. Usually the business ceases trading and employees are made redundant.Only if the first two options are deemed unattainable, can the administrator use this third option.Under the administration option, it is possible for the company and its directors (or a creditor like the bank) to apply to the court to put the company into administration through a streamlined process.However, the law requires that any finance provider (like a bank or lender), with the appropriate security, is contacted and the aims of the administration be discussed and approved. The finance provider must have a fixed and floating charge (usually under a debenture) and the charge holder will need to give permission for the process to go ahead. Five days clear notice is required.  Be aware, though, that a secured lender can appoint administrators over a company without notice if it thinks its money is at risk.  So communication with the secured lender is essential.  

What Does Going Into Administration Mean?

What is Receivership?

in What is …? What is receivership?

Understanding Receivership: Receivership, also known as administrative receivership, is a legally sanctioned procedure where an entity, typically a lender like a bank, appoints a receiver. The primary role of this receiver is to "receive" and liquidate the company's assets, if necessary, to repay the lender. This process is particularly beneficial to creditors as it aids in the recovery of defaulted funds, potentially preventing the company from facing liquidation The introduction of a receivership simplifies the lender's task of securing owed funds in cases of borrower default.Receivership should not be confused with administration and a receiver can only be appointed by a holder of a qualifying floating charge created before September 2003. Changes to this procedure were brought in by The Enterprise Act 2002 which promoted company rescue and saving struggling businesses. Why would a company go into receivership?The company requires finance for its activities and borrows from a bank (or other secured lender). In consideration for providing the loan, the bank requires security. Normally the company will sign a debenture with a fixed and floating charge. This offers the bank security over the assets of the company. If the terms of the agreement are breached or the company does not conform to the bank's wishes, the charge holder can:Appoint investigating accountants to ascertain how secure or not the bank's debt is and determine the best route forward (not always receivership). Demand formal repayment of the loans without notice. Appoint a receiver to administer and receive the company's assets.The receiver has a duty to collect the bank's debts only,they are not generally concerned with the other unsecured creditors or shareholders' exposure.Receivership - A typical appointment Having borrowed against a business plan that has not worked, a company finds that it is suffering cashflow problems. In an effort to survive, the company reports its problems to the bank and the bank asks for more information on the problems the company faces. Struggling with the problems of firefighting, the directors find it difficult to produce the information. Often the accountancy and reporting systems are not robust and a lot of time is needed to work out where the company is going, what the depth of the problems is and the necessary reporting to the bank is delayed.As time goes by, the company's overdraft is constantly at its limit, because monies don't come in fast enough from customers. Clearly this should set alarm bells ringing at the company - it most certainly does at the bank. They call this ceiling borrowing, and take it as a sign that the directors are losing control.  When this happens the bank will review the account and will typically take some or all of the following steps: What the Bank will doThe bank will ask for a reduction in its exposure. It will ask for increased security from the directors or shareholders. Usually this takes the form of personal guarantees to support the security that the company has given through the debenture. It may ask for new capital to be introduced by the shareholders. Problem is though, occasionally, this only has the effect of reducing the bank exposure as the bank takes this cash to reduce the borrowing. It can ask for a new business plan from the directors, along with regular reporting. It may ask for the company to consider receivables finance (factoring) to remove its borrowing and move to a factor. Often the bank's own factoring company. If they are still not satisfied that the directors are in control and if the bank is concerned about its exposure it will ask for investigating accountants (or reporting accountants) to look at the business. Normally this is a large firm of accountants who send an insolvency practitioner (IP) into the business to ascertain:Is the business viable? Is the company stable? Does it have a long term future if the present difficulties can be overcome? Is the bank's exposure sufficiently covered in the event of a failure? In this report the IP calculates what the assets of the business are worth on a going-concern basis and in a forced sale scenario (or closure basis). Investigating accountants often recommend that the bank sticks with the business, but that the bank should limit any further borrowing to the fully secured variety - in other words the directors must secure it personally against property for example. If the IP thinks that the company is in serious risk of failure and that the banks may lose money in that event, he/she will usually recommend to the bank that they appoint a receiver or administrator. Usually the bank (bizarrely) requires the directors to "request the bank to appoint a receiver". This is face-saving, and designed to deflect criticism from the bank to the directors.At Company Rescue, we believe that it is wrong that the insolvency practitioner that carries out the investigation could also be the receiver - We think it is essential that his/her role as investigating accountant is limited to just that. However, fortunately most banks now agree that this is not a good approach. Once they are appointed what is the receiver's role and powers?A receiver will quickly ascertain what the prospects for business are and decide whether to sell some or all of the assets, the business as a whole, or to continue to trade whilst a better deal can be achieved. Because of the rules and case law, he may wish to get rid of the assets and staff as soon as possible. (They will have to adopt employment contracts 14 days after the appointment). They may remove directors and employees without impunity. They ultimately decides the way forward and will (often) not take advice from the directors. They must pay the preferential debts (employees claims for arrears of pay and holiday pay) first from any floating charge collections. If a deal is to be done with directors the receiver must first advertise the business and its assets for sale. They must conform to the tight rules and regulations governing receivership and report to the DBEIS. A receiver must investigate the conduct of the directors of the business and file a report with the DBEIS.Disadvantages of Receivership The company is rarely saved in its existing form. Its assets will be subject to "meltdown" ( most people know that in receivership or liquidation assets are sold at a knock down price), often jobs and economic activity are lost.The directors will typically lose their employment and any monies the company is due to them, and the company may cease to trade. In addition the director's conduct is investigated.From the creditors' perspective, it is unlikely that any unsecured creditors will receive any of their money back and often they lose a valuable customer. Clearly the cost of receivership can be very high and the bank has to underwrite the receiver's costs. Advantages of Receivership The bank can take control where directors have maybe lost control. The receiver also has power to act to save the business quickly. The bank can ensure that its exposure is (at least) not increased and hopefully recover all of its money. For directors, the advantages are that it mitigates the risk of wrongful trading and may crystallise a very difficult position allowing them to get on with their lives.Preferential creditors may see their debts repaid by the receiver.Still got questions? Click here for Receivership FAQs. If there are still unanswered questions contact us by email or call 08009700539.If your business is in trouble and the relationship with the bank is breaking down, we suggest that you look carefully at the guides in this site. Receivership may be an option. Work out the viability of the business - can you trim costs? Work out the problems, set out the position and have a meeting of directors. Decide if the business can continue but needs to be restructured or if just not viable then consider administration or if the company's lenders have a debenture pre-dating 2003 then receivership.Please call us on 020 7887 2667 (London) or 08009700539 to talk to an expert turnaround advisor if you would like to talk through your company's options.

What is Receivership?

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