Five things You Need to Know About Commercial Mortgages

So, you’ve been shown around the perfect commercial property. You’ve examined each little nook and cranny, analysed the transport links and done some serious maths that tells you the exact profit percentage you can expect to make in 1, 3, 5 and 10 years’ time. You may even have a workforce that’s itching to move into their new office, business contacts who’ll be interested in renting it out or have secured planning permission to develop the site further into offices or retail space.

Once you’ve decided you want it, you just need to find the finance. That means securing a commercial mortgage. Here are the five things you need to know about commercial mortgages:

They’re similar to residential mortgages

You find a property that you love and you use it as collateral in order to secure a mortgage, over a period of up to 25 years. The concept of commercial mortgages is similar to their residential counterparts.

They’re essential if you’re going to use the property for business

A few years ago, mortgage providers were flexible enough to allow you a residential mortgage even if you intended to use the property for business purposes such as renting it out or using it as an office. Nowadays the industry is much stricter and that isn’t the case – if you’re planning to make money using your property you’ll need a commercial mortgage.

They’re a cheap business loan

Many investors will look to business loans as a way of securing investment for their company. But because a commercial mortgage uses the property as collateral in the deal, there’s significantly less risk incurred for the lender. As a result, an investor can use a commercial mortgage to ensure a larger loan with more competitive interest rates than they’d get from a regular business loan.

You’ll need to justify your earnings

Like a residential mortgage, when you’re trying to secure commercial finance you’ll have to justify your earnings and expected revenues to your lender. If you’re a business acting as an owner occupier for the property, the lender will want proof that your company is viable, with healthy audited accounts. But if you’re an investor, the mortgage provider will want to know how the figures stack up, with projections on how much you expect to earn from the property over the years. They’ll also examine your credit history and any other assets that you own.

Now’s a good time to borrow

The Funding for Lending Scheme (FLS) was announced in August 2012 in an attempt to increase bank lending to around £60 billion. It can help anyone who wants a commercial mortgage. The scheme allows banks to borrow money cheaply from the Bank of England so that in turn they offer investment to small businesses at more competitive rates. The initiative runs until 2015, so strike while the iron’s hot – lending is currently at a below-market rate, while some lenders are also incentivising borrowers with attractive cashback schemes.

Top ten tips for starting a business

Have you got a great money making idea but you don’t know where to start? With these top tips you’ll be ready to lay the foundations for your own business in no time!

In the UK alone there are hundreds of people every year who cast off their old jobs or escape unemployment by starting their own company – here are the steps to take towards success:

1.  It all starts with a really good business idea

Once you’ve convinced yourself that starting up a business is the way to go, you will need to have a good idea for what your business is going to do. Be realistic, play on your strengths, qualifications and things that will actually bring in the cash. This will require a lot of research and will probably have the greatest changes from start to finish.

2. Create a business plan

Take lots of notes when doing your research, they will help you create an accurate and detailed business plan. You need to be able to show that your business idea will turn into cold hard cash, giving you a viable business. This can’t just be sketched across a legal pad – any potential financers will need to see your plan so make sure it’s written up professionally and coherently.

3. Figure out where you’re getting money from

Start-ups don’t have to be expensive, many can be done using nothing but a computer! However, it’s always good to plan in advance where your money will be coming from. How are you planning on handling your finances and tax? It is a good idea to enlist the help of an accountant and a lawyer to ensure that everything is run legally.

4. Find the best business bank account

If you’re setting up as a limited company then you will need to have a business bank account, but just like personal accounts each one is different – be sure to have a shop around to find the account most suited to your needs. When applying for a business account you will need to show your business plan, luckily you’ve followed tip number 2 and that’s already sorted!

5. Where are you operating from?

Many online businesses can be run from the comfort of your home, however this can interfere with your personal life and may appear unprofessional. A good solution is to invest in office space, purchasing the property will help reduce your overheads and boost your business assets. By using commercial mortgage brokers and lenders, you will be able to get the best deals on mortgages, suited to your individual needs.

6. Sell your story

People are interesting, especially people who do things that others haven’t done themselves – like starting up a business. Tell people who you are, what you came from and what your plans for the future are. This is a form of self-marketing, drawing people into your life and driving them towards your business, creating a strong relationship with potential customers.

7. Prepare for obstacles

Businesses can be compared to white water rafting, sometimes it’s plain sailing but more often than not there are lots of rocky patches in the way. With careful planning you can tactically avoid most of these obstacles but sometimes things happen too fast and you can end up hitting these tricky-to-navigate waters. If you’re prepared for them then you will know what you need to do to avoid disaster; if you haven’t taken difficulties into consideration then you may be in a lot of trouble!

8. Going alone or finding partners?

Once you have all your business ideas and initial work down you will need to decide how you’re planning on continuing. There are perks to both going it alone and bringing in partners, it will depend entirely on your preferences and how you wish to conduct business.

9. Insure everything

Accidents happen and unfortunately they can have a disastrous effect on a start-up business. If you accidently spill your coffee on your laptop that you run your business with then your entire business could potentially be ruined. By insuring everything you will be able to get back online quickly regardless of damage, theft or disaster. Whether you’re using your home as an office or if you have commercial property it is important that you take out public liability cover to protect yourself legally.

10. No time like the present

Don’t wait around for things to happen for you, if you want to start a business go out and do it! Figure out what you want to do, plan your business and finances, work from home or find commercial mortgage brokers and lenders to upgrade you to office buildings, market yourself and prepare for hardships. If you follow all these steps your business will be up and running in no time allowing you to enjoy being your own boss.

Why would you choose to use commercial mortgage brokers

In the business world, it’s considered folly by many businesspeople and investors to work with agencies and brokers.  After all, it’s tough to become successful by paying someone to do something that you could easily do yourself.

However, when it comes to getting a commercial mortgage, one of the worst things you could do for your new property is to go it alone. We can’t stress enough how essential it is to work with a commercial mortgage broker. Here’s why:

Speed and simplicity

Any entrepreneur knows that there just aren’t hours in the day to get the job done. So, as a result, a truly successful entrepreneur is well versed in the value of delegation – trusting capable people with the tasks you don’t have the time for. Time is money, after all. Working with commercial mortgage brokers and lenders ensures that it’s they who are spending hours and days sourcing the most competitive rates, not you, while you’ve the time to source the next big deal.

Knowledge

Part of being a good entrepreneur is accepting when others might know a little more than you and trusting their knowledge. Unless you possess an encyclopaedic knowledge of commercial property law and interest rate fluctuations, you probably won’t know as much as the average commercial broker, so the wise thing to do is listen to them and trust in the fact that they’ll help you to get the best rates. Because of their expertise when it comes to commercial property, they may even be able to let you know potential pitfalls in a deal you may not have noticed, or investment opportunities you’d otherwise turn your nose up at.

Contacts

Part of good business is building up a huge list of varied contacts who can help you out in times of trouble. That’s where you can really make the most of a good commercial mortgage broker, who will be able to boast a not inconsiderable amount of contacts in the banking and mortgage industry who’ll be able to offer better terms than you could ever hope to find elsewhere. Not only will a good broker know who can offer the best deals for specific industries and individual needs, but they’ll know the little ways that they can relate to lenders on an individual level – increasing your chances of landing a competitively-priced mortgage.

The inside track

You’ll know that in business it’s essential to be first to potential investment opportunities. Investors and entrepreneurs often operate in a dog eat dog world and if you find yourself hesitating over a potentially lucrative deal you can guarantee that someone else will swoop in and take the glory for themselves. If you’re in cahoots with a trusted commercial broker, they’ll be able to give you a window into lucrative deals that are yet to see the light of day – allowing you to swoop into a money-making scheme before anyone else notices it.

Property development on a budget

You need new premises for your business but you don’t want to spend a lot of money. You’re on a budget and considering that a refurbishment may be cheaper than relocation. What’s more cost effective? Here are a few tips to help you on your way with the perfect property development on a budget.

Budget

Before starting any development, decide on how much money you want to spend. Don’t ‘go with the flow’ but set a budget and stick to it! Include all outgoings and be realistic about what they will cost. Do research into prices if need be and itemise. Remember to give yourself a contingency fund of 10% or 15%, hopefully you won’t need to use it but it provides you with a safety net just in case.

Securing finance

Ensure finance is in place for the whole project before you start any work. If you don’t have the savings yourself there are many alternative ways of funding the development of a commercial property.
Speak to your bridging finance brokers, they may be able to offer you a short-term loan which will cover development costs. Bridging loans can come as an injection of cash in order to upgrade your business premises. This is a loan against the land or a building which you wish to develop.
If that isn’t for you then why not try contacting your local council or city’s commissioning office. They may offer money towards the project in order to develop the area. This may save you money as repayments are made as a special tax over a long period of time. The council may contribute towards the cost of building roadway access to the development or other external factors such as drainage or parking facilities.

Do your research

Make sure that a development is profitable for you. Be aware that it may cost more to develop an older property due to deterioration over time. Unexpected problems may arise which will eat in to your budget. Know what you’re letting yourself in for and get the experts in.
Depending on the extent of the commercial development you may need planning permission. Building regulations may inhibit progress so try contacting your local planning office before you spend any money. Planning permission is not needed for internal alterations.

Spend to save

If you’re going to do a job, do it properly or not at all. You may be doing this development on a budget but it may be better to spend more now to save money later. Don’t scrimp too much on the development as cheap materials are often not as reliable as the medium range ticket items. You may think you’re saving money now but it may cost you double to rectify the problems further along the development. If you’re looking for a quick turnover to sell a development, cheap fittings and fixtures may put off prospective buyers.

Scheduling

Keep a tight schedule. Plan out when you will need each type of tradesmen; for example, an electrician will be needed to run cables before a painter and decorator starts work. Many tradesmen work on an hourly or daily rate so don’t spend money on nothing – find someone with suitable charges for the size of the job.
To save money try and carry out work in a ‘live’ environment. Complete works out of hours or in phased developments. This way you’re making money as you spend it. This is only recommended on small developments, however, to keep health and safety risks low.

Keeping costs low

Other ways of developing on a budget include project managing yourself. This is not for the faint hearted and may seem daunting to an inexperienced individual. Project managing involves co-ordinating and organising all work on site and is very time consuming, but if you have the time available it can save you a lot of money.
If you’re looking at long term savings then energy saving equipment may be apt. Use fluorescent strip lighting or energy efficient lights to create optimum light on a budget. Solar panels will save you money in the long run but if you’re looking to sell in the next few years then they’re not for you.

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Virtual offices vs. traditional bricks and mortar: The effect of the virtual on the commercial letting market.

With an ever increasing internet presence in everyday business many people are now switching to a virtual office over traditional bricks and mortar. A virtual office is an online space which provides a company with address and communication services. It is a professional alternative to a physical office space, at a lower cost.

Virtual offices are becoming increasingly popular among new businesses or start-ups as they allow an individual to dip their toe into the virtual market in order to test the waters of success. With train tickets raising by, on average, 6% per year and fuel prices on the rise virtual offices are becoming ever more popular.

According to a TUC analysis of data from the Labour Force Survey, the number of people working from home has risen 13% in five years. However with a recovering economy, office space in the UK’s biggest cities is still being snapped up, much to the pleasure of commercial mortgage brokers working to get their clients the best deals on business properties. So which do you choose? Is a virtual office or a traditional office better for your business? Time to weigh up the benefits.

Location

You can sleep in! A virtual office allows employees to work from home or from anywhere with an internet connection meaning there is no need to commute on a daily basis. Working from home cuts out the costs of commuting as well as the time spent stuck in traffic.

As there is no physical space when working in a VO, meetings are held online. Companies will not meet with clients in person but rather in a virtual environment. There is no need to sign paperwork or deals. This may be of benefit as it cuts out travel time and costs however may be disadvantageous if your business prides itself of the personal touches and you will be missing out of the wow factor of a finely furnished office space. The success of physical premises lies greatly in its location; setting up office in a business-focused city can create buzz and boost your brand, but you have to make sure it’s easy for visitors and employees alike to commute to.
A virtual office cuts out expenses such as leasing or buying a property as well as other out-goings such as utility bills.

Pick and Choose

A reduce in costs means a company can be more selective. It allows freedom to choose who you work with. If overhead costs are reduced then more time and money can be spent on improving relationships with existing clients and improving referral rates.

Flexibility

No more nine ‘til five! Traditional offices often have a number of fixed hours per day with the offices closing at night and on weekends. A virtual office provides employees with a customised work schedule which is flexible. As long as the work is submitted on time there is not a fixed number of working hours. VO’s allow an employee to take breaks whenever they like or to complete tasks in their own time. The lack of fixed hours however may be a drawback to some individuals as it blurs the lines between home and work life with a lack of routine.

Paper vs. Electronic

Virtual offices offer many technological advantages. Many VO’s use Telephone Integration Software which eliminates the need to employ a receptionist. A virtual office takes up little physical storage space also. Information is stored in online office systems, this cuts down on filing and shelving. This data is then backed up on external hard drives. Although a great space saver without physical copies, printer costs may become an added expense.

Is a virtual office right for you? Well that may depend on the type of business as well as some of the features highlighted above. Everyone has their own way of doing things and some businesses simply work better in a physical space. One thing is for certain, virtual offices are withstanding the recession in a time where some traditional offices are remaining vacant.

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Reasons for re-mortgaging your business property

Remortgaging your commercial property is one of the best ways to quickly improve your finances or save a fortune. If you remortgage £100,000 and manage to cut just 1% off the interest then you could save £1,000 a year or £80 a month! There are three main reasons you may to want to re-mortgage, these are: To save money, to raise money or to consolidate your debts. Here are the reasons why re-mortgaging your property with a business finance broker is a good idea:

Playing the field

Trying to find the best possible deal can be a real challenge if you’re not up to date with all the banking requirements or know who the best lenders are for your business. Experienced commercial financial brokers will have strong knowledge of the best places to look to find lower rates or lenders willing to increase your mortgage. If you’re the type of person who goes out and checks the prices of anything you want to buy then you’ll probably want to do the same with your mortgage – brokers are able to reach every lender in order to get you the best possible remortgage deal.

Cash boost

If your business’s income has increased or the property is worth more, then you could potentially increase your mortgage in order to help pay for major outgoings. If you’re planning on developing your current office by having a redecoration, extension or if you simply need to gain funding in order to pursue a business venture. Commercial finance brokers are able to expertly package your business to appeal to lenders, helping to get your business the finances it needs at the best possible market rates.

Split your debts

Through remortgaging your business you can gain access to some of its equity in order to consolidate some of your other debts which may be at a higher interest. If you’ve had to take out a bridging loan to acquire land or an auction property, then remortgaging an existing property can help to pay off this debt. You need to ensure that the remortgage rates you receive are lower than the interest on the debts to make sure that you save money by remortgaging.

Room for development

Taking out a commercial remortgage could provide you with the funding necessary to invest in additional land or business premises. This extra cash flow comes at a lower interest than many other forms of finance, helping you to rapidly grow your business without finding yourself having to repay expensive loans. Before you decide to take out a remortgage in order to pay for additional land or property it is a good idea to talk to a commercial finance broker. Professional brokers are able to assess your situation and find the best financial solution for your company, whether this is taking out a commercial remortgage or looking into alternative forms of finance.

The best places in the UK for commercial investment: Where to spend your money

Bricks-and-mortar assets are a worthy investment again. With a recovering market many are now investing into commercial property; however with more space than investors in many areas, location is everything.
In a recent report by the Department for Business Innovation and Skills, it was found that London and the South East have the largest number of private sector businesses in the UK. Does this mean that it is the best place in the UK for commercial investment?

Deciding factors

Before you speak to your commercial mortgage broker or decide on a location for commercial investment, a number of factors must be considered: Is there a high foot-fall? Are the parking facilities suitable? What’s the crime level like?
Indeed, at the moment, the South of England is popular among the commercial industries; as an area of strong economic activity, the South of England is attracting much foreign investment too. A strong economy is important if you are looking to be based and to sell in a particular area. Despite economic troubles in the past few years, London and the South East have remained relatively strong.

Transport and development

Transport links may be a defining factor in the decision of where to invest too. The local infrastructure can affect a business’s success so try to go for a location with good road and rail links. Investment along the M4 corridor benefits from such transport links.  With easy access to the M4 and direct trains to London, Bristol is a great place to invest. A central location may also be of benefit whether that is a midland location such as Birmingham or in the Thames Valley.
Future developments are an easy way of telling if an area is up-and-coming. If large amounts of money are ploughed into an area through development then other industries are likely to feel the benefits. For example, with a £7 million new construction centre opening in West Cumbria in the new school year, there will be an increase in those looking for a job in construction. An up-and-coming area is also likely to have lower business rates and cheaper properties. London has the freest office space in the UK however it is also the most. Hull, Liverpool and Belfast are the cheapest yet there is less choice when it comes to office space.

A saturated market

If you’ve narrowed it down to a few areas for your investment then it may be of benefit to consider what industries are currently located there. Is there a market and how well is it doing? A city or region may be known for a certain type of industry and clusters appear around established businesses. For example, technology companies are a-plenty in the Oxford and Cambridge areas whereas London and Edinburgh have clusters of financial services. A strong industry area may also benefit from an abundance of skilled workers and an established customer base however, investment may be a poor choice if the area is over saturated.

The capital is the place to be

For a successful commercial investment, the area must work for your business but also for you. Location may simply come down to where you call home or somewhere you’ve been recommended. The best UK spots for commercial investment is subjective to a degree however, the capital undeniably continues to be the most popular area to investment your money.

Our guide to commercial finance broker jargon

Some people can talk the talk and walk the walk, but if you don’t understand what they are saying you could find yourself in a bit of a pickle, especially where your finances are concerned! There are hundreds of terms that can be thrown around making you think your deal is better than it is or persuading you to buy additional things you don’t need. Here’s a list of definitions for some of the most common jargon used by commercial finance brokers to help you understand exactly what’s going on:

Adverse Credit: This describes the situation where an investor has accrued bad credit by failing to make payments – this can affect exactly what can be borrowed for a commercial property.

APR: Annual Percentage Rate is the standard way of working out the true interest rate, allowing you to make accurate comparisons with mortgages from various lenders and work out how much you will pay each month.

Base Rate or Bank of England Base Rate: The Bank of England set the standard rate of interest charged by banks; this rate is set by a monetary committee each month. Typically mortgage rates are 1-2% higher than the current base rate, this is where fixed and variable mortgages differ.

Broker: Brokers act as an intermediary who works to find the best mortgage deals for their customers. Their role also enables them to take care of all the paperwork and make contact with lenders on your behalf.

Broker Fee: This is the amount charged by the broker for acting on behalf of the client.

Buy to Let Mortgage: They describe a commercial mortgage which is acquired for renting out a residential or commercial property to tenants/ to a business.

Bridged Finance: A short-term form loan to bridge a gap between buying a property and securing your commercial finance.

Commercial Mortgage: A loan taken out to use against a commercial property.

Compound Interest: Interest that is calculated on the principal and the interest accrued on top.

Conveyancing: When buying or selling a house the legal process involved is called conveyancing – this is defined as the transfer of property to a new owner. Although it is possible to do this yourself, the majority of people use a solicitor.

Credit Score: When applying for any type of credit, including a mortgage, you will need to have your application analysed based on certain criteria – this criteria is assessed against the points awarded. The amount of points you have are referred to as a ‘credit score’, people with low scores may be refused credit.

Decision in Principle: Once your information has been handed over to a lender they can then tell you how successful you’re likely to be in applying for a mortgage – this is termed a decision in principle. It is important to note that this is not a formal mortgage offer and is subject to terms and conditions.

Discount Rate: Often mistaken for meaning a lower rate for the entire period of the loan, discount rates are given for a certain period, offering a lower interest rate to start. After this discount period has finished the rate is then able to go up or down.

Early Repayment Charge (ERC): Although you may think that paying your mortgage back early is great, you could be subject to an extra charge for repaying before the end of the deal term. The ERC could be worked out as a percentage of the loan or a set number of monthly repayments.

Equity: This is the positive financial difference between the value of your commercial property and that of any outstanding mortgages.

Fixed Rate Mortgage: At the start of the mortgage a figure is agreed between lender and borrower and is fixed at that rate during the entire term of the mortgage, regardless of changes in Base Rate.

Interest Only: This is where the borrower only pays back the interest on a loan, with the actual balance of the mortgage not being paid back. If you take out an interest only mortgage you will need to have the funds to repay the mortgage at the end of the term.

Loan to Value (LTV): This describes the loan percentage of the value of the property you are looking to buy.

Re-Mortgaging: A term that is thrown around a lot for various situations. Put simply re-mortgaging is where you move mortgage from one lender to another without moving property. This can save you money on rates or even bring in extra capital by having a larger value loaned to you.

Stamp duty: Stamp Duty Land Tax is the tax which is paid upon purchase of property and varies depending on the value of the property. Typically the more expensive the property the more tax you will be required to pay.

Standard Variable Rate (SVR): The interest rate charged by your lender. It varies based on how much you repay monthly.

Tracker Mortgage: Is a type of variable rate mortgage where the rates are linked to the Bank of England Base rate. This means that when the Base Rate changes the mortgage changes to match the difference.

Term: The time span that you take a mortgage out for before it needs to be fully repaid.

Variable Rate Mortgage: Has the ability to go up and down based on the lender’s variable rates. Unlike the tracker mortgage they don’t rely entirely on the Base Rate but rather each lenders individual rate.