Commercial Mortgage / Finance

callansdad

Hi all ... I'll try and explain this one as best i can and any advice will be greatly received!

OH and i are interested in purchasing a business for approx £65,000 (this is including the building) It is being sold as a going concern with a reasonably good turnover.

I currently earn approx £27000 and would remain in this job.

Our current home mortgage stands aprox £43000 with a value of approx £55000,
mortgage was taken over ten years (eight and half years left).

We have £7000 stashed in Premium Bonds but also have quite a lot of debt. Before we get a thousand posts telling us to use the bonds to pay off some unsecured debts please be aware that the bonds were being kept to pay for some major home improvements (essential) about to take place.

approx £25000 unsecured debt (two personal loans three credit cards).

Should we consider pursuing this? Is it too much?

Should we consider a remortgage (subject to redemption fee) and release a bit more equity to raise deposit?

We are stuck in a quandry ... it seems like a good investment oppertunity for the future (subject to seeing trading accounts).

Any advice is great thanks

AndrewSmith

Hi,

First thing you need to establish is what proportion of the 'Business' is for the property and what is for the 'goodwill, fixtures, stock etc etc'

A commercial mortgage will only allow you to purchase the Building or the lease of the building. To get the very best rates (LIBOR+1-1.5) via mainstream lenders you would need to have an impeccable credit history nad a deposit for the building of at least 25%.

It is possible to mortgage the building up to 85% however you will pay the price in both interest rate (LIBOR +2.5-4.5) and set up costs with the lender as at this high a loan to value you would invariably be dealing with a specialist commercial lender such as Commercial First.

Also, commercial mortgages tend to be shorter term than residential ones. The average commercial mortgage term is 10-15 years with the average residential mortgage being 25 years.

Commercial mortgages also usually have to be on a capital and interest basis, unless paying a higher interest rate via a specialist lender where it is possible to have an interest only option for the first 3 years or so.

To buy the 'business good will, stock, fixtures, fittings etc' you will need to fund this by another method, euther cash or by a business loan from your nominated bank. Beware though as most banks will look for an initial investment of usually 50% of these costs. This would be in addition to your 25% deposit for the building.

Emmzi

A business can have a reasonable turnover and yet lose loads of money. Profit is a more useful indicator.

I would get 3 years accounts and get an opinion from your bank's business advisor. You will need a loan to purchase anyway? so get some free guidance to help you decide.

Other useful questions
- do you have any experience in this type of business?
- have you spoken to local enterprise council? for free advice/ training

To me it looks like you are over-committed for your salary and can ill afford to take risks until your debt reduces. What if the business turns into a money pit? *But* I'm a grumpy old pessimist!!!