Can you get a business loan to buy a property?

Buying a property to set up a new business facility like an office, a store, or a warehouse is a major commitment for a small enterprise whose main objective is to grow. Business property finance comes in different forms. Some of these forms appear too complex to understand at first glance but we will break them down here.

There are many platforms which can finance your business when it comes to buying a property. Each of these platforms suit different businesses and projects. The most important thing is to know and choose the financing option that suits your business. Here are some of the options to consider when getting a business loan to purchase a property.

Commercial Mortgage

A commercial mortgage is a long-term business loan which lets you buy a property and pay the lender back in regular instalments. With a commercial mortgage, the lender can fund up to 75% of the cost of buying a property with payment terms of up to 30 years. The mortgage is typically secured against the first charge. The basis of affordability is the business’ profitability and ability to pay the monthly instalments. Here are the major types of commercial mortgages to choose from.

Bad Credit Mortgage

This is a business loan designed for enterprises with poor credit history. When a business or an entrepreneur has a bad credit history, a competitive business mortgage is not easy to access. Additionally, finding a subprime lender who meets the needs of your business is not easy, let alone getting the best deal. That’s because lenders will always consider you a high risk borrower when you have a bad credit history. Nevertheless, some lenders offer bad credit mortgages that your business can use to purchase a commercial property.

Investment Mortgages

This form of property finance is ideal for prime applicants without adverse credit and with an excellent track record. It can be used for multi-million pound portfolios or single acquisitions. The terms of this mortgage can be up to 25 years while interest rates can be as low as 2 per cent above the base rate for banks. The low interest rates make investment mortgages appealing to most businesses.

Buy-to-Let Mortgages

Does your business engage in real estate investment? If yes, this is an ideal business loan for your enterprise. A buy-to-let mortgage is a business loan which is tailored to suit the needs of businesses which want to let out the property they are purchasing. This means your business can get this loan, buy a property, and start receiving an income to service the loan from the acquired property.

Multiple Property Mortgage

Whether you want to buy another business property or you want to expand your current facility, multiple property mortgages enable you to consolidate the existing loan into one. That way, you keep your finances organised and cut costs. Ideally, this financing option enables you to buy and hold or sell properties under one financing arrangement. This is more efficient than using different individual mortgages.

Bridging Finance

This is a short-term, interest-only form of lending which is secured against a property or land. The term of a bridging loan can be 12 months. It can be used to cover temporary problems of cash flow when there is a pending financial agreement. This form of property finance is popular among businesses when the need to wait for credit to be available during a property transaction arises. For instance, you can use this business loan when you want to purchase a new business property before selling the current one.

Auction Finance

Auctions provide the quickest way to buy properties at discounted prices. But, if you intend to purchase a building at an auction, make sure that you have finances ready before raising the paddle to bid for it. However, it’s possible for finances to fail to come through as expected. Nevertheless, this doesn’t mean you will lose the chance to purchase the property your business needs. You can still buy the building with auction finance.

Auction finance has the same premise as a bridging loan. It’s a form of financing which covers the gap between property purchase and the time your finance comes into place. If you find a lender whose specialty is auction finance, you will get a business loan to purchase a property faster. In fact, you can get the money in as little as a week’s time. Some lenders release the money before the auction date.

Property Development Finance

This is a short-term loan which is used to develop a new building or refurbish an existing property. Whether your goal is to build a new structure, extend, or convert an existing property, the development project is likely to be costly for your business. Since most businesses do not have the amount of cash required by development projects at the ready, this form of finance becomes an ideal option. With this type of property finance, a business secures a loan against an asset or the property under development.

Portfolio Finance

A portfolio refers to a collection of investments held by a hedge fund, an investment company, an individual, or a financial institution. Portfolio finance is a long-term commercial loan offered to real estate investors or companies with several rental properties. If you run a real estate business, you can use this loan to finance your purchases. With this funding, a business loan is basically secured against the existing properties or assets. The money borrowed can be used to buy a property, expand the existing portfolio, or develop the existing properties.

Mezzanine Finance

This is a hybrid, more complex type of business funding. It combines elements of equity investment and debt financing. It’s also secured against a property. This form of finance enables businesses or property developers to reduce cash flow issues when acquiring or developing new properties. It’s mostly used by businesses when developing or acquiring properties which need a large capital share.

The Bottom Line

These are some of the options you have when it comes to getting a business loan to buy a property. These loans are mostly offered by building societies and banks. Businesses can borrow money and pay back over an agreed time frame. Note that some of these forms of property finance for business require a directors’ guarantee. Therefore, if the business is unable to pay the loan back, directors are held personally liable for the borrowed amount.