Commercial Loan - Broker Or Bank
Below is a MRR and PLR article in category Finance -> subcategory Real Estate.
Commercial Loans: Should You Choose a Broker or a Bank?
Summary
For many years, commercial loans were primarily the domain of major high street banks. However, with more lenders entering the market, much like the residential mortgage scene, should consumers rely on their bank or opt for a broker?
Understanding the Market
The UK boasts approximately 5.2 million commercial properties. The commercial property market saw a 32% growth from 1990 to 2000, a period of remarkable expansion. In the first quarter of 2005 alone, bank lending for commercial properties increased by a staggering £7.7 billion, largely driven by investment purchases.
Investor Interest
More investors are looking to acquire commercial properties to include in Self-Invested Personal Pension Schemes (SIPPs). Property investment funds received a boost when the Government allowed them to be part of an ISA (Individual Savings Account). This change benefits commercial property funds significantly.
The Role of Brokers
Due to increased interest from investors, speculators, and businesses, brokers have become crucial in the lending process. Since Mortgage Day in 2004, many brokers have moved into the commercial loan sector. However, 58% report a decline in profits since this shift.
Expanding Lender Options
Traditionally, high street banks dominated commercial lending, often prioritizing existing business customers. Now, there are over 1,200 commercial lenders in the UK, making the market more competitive.
Flexible Lending Options
Lenders now offer various flexible options, such as delayed interest payments, to assist with cash flow, startup financing, and business expansion. While lenders typically offer up to 80% loan-to-value, 100% financing is possible with additional security. Standard requirements like three years of audited accounts are no longer always necessary. Self-certification and clients with adverse credit are now considered, though at a higher interest rate, typically between 1% to 4%.
Funding Opportunities
A wide range of business types can access funding, including retail businesses, professional practices, property development, offices, factories, and the healthcare sector. The leisure industry, encompassing hotels, cafes, and pubs, is a consistent player in commercial lending.
Pubs, in particular, often turn to brewery loans, known as Advance of Discount (AOD) or "Write Off" loans, offering favorable interest rates but often with shorter repayment terms.
Considerations for Leasehold Lending
Lending on leasehold is available up to 65% of the property's value, often secured against the applicant's main residence. Given that many businesses fail in their first year, applicants should carefully evaluate the risks of securing their homes against a lease.
Conclusion
Choosing the right path for a commercial loan, whether through a broker or a bank, requires careful consideration of various factors and a thorough understanding of the evolving market. Utilize specialized calculators and secure application processes to make informed decisions tailored to your needs.
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