commercial mortgage help

cianalas

Looking for a little bit of advice on commercial mortgages. We have only ever had residential mortgages but now want to buy a business which requires land and property. We have been told that we would need to have around 50% equity (we have around £350000), I would continue to earn around £76000, DH running business and the business would have around £40000 profit (t/o 90K) per year. We know the type of business we want but to be honest - nothing decent is less than £800000K so we are a little short. TBH I am not even sure what interest rates is generally charged on a commercial mortgage (I know it would be more than a Residential) to see if it is viable to have a little less than 50% equity. Any advice appreciate.

GMS

What type of business is it? Is it trading presently?

You would probably be best getting a broker. That way they could compare the market and find the best deal possible for your circumstances.

Let_Us_See

If a good all round proposition then commercial interest rates are quite competitive at around base + 3.0% - 4.50% from main lenders.

If you are considering buying an existing business then your first action should be to get hold of as many past years' accounts as possible - you should aim for at least the last three years. If not available, ask yourself why?

With the right business 50% LTV seems very conservative and 60 - 65% LTV should be available. Unless there is a specific reason behind your calculation, £40k profit (gross or net?) or a £90k turnover appears highish. Your continued income source would also act in your favour.

Unfortunately, until you locate a specific business that interests you at this stage I can only provide generic information and advice.

cianalas

Thank you both. - it would be kennel business and it would be trading. Three year accounts are the standard from what we have seen so far. The problem with this business it seems it that there is a lot of 'cash' transactions endemic in this trade and it worries the banks. we have seen nothing that is good enough to spend the kind of money they are asking - the land prices are the problem and an unrealistic view by the seller on what equity people might have available and so access to lending. Can I ask 2 very basic but important questions for me - what exactly is a broker and are they specific brokers for commerical mortgages? We have only been taking advice from our bank so far.

Let_Us_See

Most people would probably start by arranging an appointment with their existing bank and they may be able to assist (they will also take the opportunity to try and sell you every product under the sun). Even if they could help, I would advise you to shop around as T & Cs could vary greatly between providers, especially if your own bank believes it has a captive market.

In simple terms a broker/adviser is the same thing. Some work for a single provider (a bank or building society), others have access to a panel of providers, and others, the whole of market (access to all lenders/providers). There are residential advisers and commercial advisers, and some do both.

There are two standard excuses used by vendors when trying to sell an overpriced business. One, "my accountant is very clever and minimises my profit/income to save paying tax" and secondly "I hope you realise this a cash-rich business (wink, wink)." Disregard both these excuses and base any offer purely on the available accounts and net profit generated. Any provider will use the available accounts to assess the ability of business to service debt (borrowing), and here again, a greedy vendor may lose out.

Land values can be a problem with kennels/catteries as often it is by far the dominant factor in the proposed selling price. Having said that, most providers will only lend on "bricks and mortar" (and to some extent the realistic land value of the business), as any existing business can disappear overnight.

Good luck with your search and come back if you have any more questions.