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Starting a business - bank funding v private investment

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bluepbluep Forumite
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If you were looking to start a buiness that involved needing to purchase some land and buildings up front, then development cost to turn them into premises, then an income stream from 6 months onwards, what are the funding options.  Does it all need to be raised from private investment or will a bank say loan 50% or more of the premises value as a commercial mortgage secured on the property?   It would be useful just to have an idea of LTV and potential commercial mortgage rates when you don't already have an up and running trade.

Say if the property cost was £600,000, the development costs £50k and then potential profits in the region of £100k-200k per annum.

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  • edited 1 June at 1:07AM
    brisbris Forumite
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    edited 1 June at 1:07AM
    Banks want 30-50% upfront and as asset to secure their lending to you. The asset you buy will be taken into consideration but they will also want a personal guarantee, usually your own home on the line too. 

    Finding a private investor will be difficult and also want to go about 50/50 but in the end they will take much more than a bank.
    You do all the work and they get half the profits, if any.

    In this climate it will take a long time to get an investor or bank to even look at a property investment. 

    For £650k investment in property you want to make 100-200k profit per annum? Dream on.
  • bluepbluep Forumite
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    bris said:
    Banks want 30-50% upfront and as asset to secure their lending to you. The asset you buy will be taken into consideration but they will also want a personal guarantee, usually your own home on the line too. 

    Finding a private investor will be difficult and also want to go about 50/50 but in the end they will take much more than a bank.
    You do all the work and they get half the profits, if any.

    In this climate it will take a long time to get an investor or bank to even look at a property investment. 

    For £650k investment in property you want to make 100-200k profit per annum? Dream on.

    Thanks for the comments.  Already got private investors lined up, so my question was about the bank funding and the ratios between the two.  As for the profit, you've misunderstood my post, it's not from property investment, it's from the business that be would operating on the premises - not even including any capital appreciation on the property after development.  But the business needs the land and property to operate with development to specific criteria so a bit of a catch 22 as it will need the investment up front.
  • sliphisliphi Forumite
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    bluep said:
    If you were looking to start a buiness that involved needing to purchase some land and buildings up front, then development cost to turn them into premises, then an income stream from 6 months onwards, what are the funding options.  Does it all need to be raised from private investment or will a bank say loan 50% or more of the premises value as a commercial mortgage secured on the property?   It would be useful just to have an idea of LTV and potential commercial mortgage rates when you don't already have an up and running trade.

    Say if the property cost was £600,000, the development costs £50k and then potential profits in the region of £100k-200k per annum.
    So if I understand you correctly, for an investment of £50k (plus the land & buildings) you think you can generate an annual profit after 6 months of up to £200k?

    Sounds amazing!

    Rent the land/buildings and prove your model works. If you have the evidence to prove your projections in 6 months time, people will be queueing up to lend you the money.
  • martindowmartindow Forumite
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    How about renting premises initially to reduce the initial investment?  You could avoid the need for private investment or a bank loan altogether.  I imagine that now there must be a lot of available premises and very few potential tenants, so you should be able to negotiate hard to get a good deal.
    After a few years of making £200k a year you could buy premises outright.
  • bluepbluep Forumite
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    sliphi said:
    bluep said:
    If you were looking to start a buiness that involved needing to purchase some land and buildings up front, then development cost to turn them into premises, then an income stream from 6 months onwards, what are the funding options.  Does it all need to be raised from private investment or will a bank say loan 50% or more of the premises value as a commercial mortgage secured on the property?   It would be useful just to have an idea of LTV and potential commercial mortgage rates when you don't already have an up and running trade.

    Say if the property cost was £600,000, the development costs £50k and then potential profits in the region of £100k-200k per annum.
    So if I understand you correctly, for an investment of £50k (plus the land & buildings) you think you can generate an annual profit after 6 months of up to £200k?

    Sounds amazing!

    Rent the land/buildings and prove your model works. If you have the evidence to prove your projections in 6 months time, people will be queueing up to lend you the money.

    Yes £100k-200k p.a. return and that would be at a prudent 50% trading capacity in the cashflow forecasts.  But the right land and buildings aren't for rent, just for sale (tried to convince the owners...) and the modifications needed are substantial.  It needs the initial upfront investment - which is a big barrier to entry to the market hence comparing the different funding options.  It's one of those businesses that not many people embark upon due to a) lack of in depth experience in the industry and b) difficulty in getting start up money up front.
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