Starting a business - bank funding v private investment

bluep

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.

bris

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.

bluep

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.

sliphi

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.

martindow

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.

bluep

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.

advisergirl

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.

If you're looking to buy land and buildings upfront, then cover development costs and start making income after 6 months, you’ve got a few funding options. Most banks will give you a commercial mortgage for around 60-75% of the property's value, so if it's £600,000, you might get £360,000-£450,000 from the bank. You’d need to cover the rest through savings or private investors. Development costs (£50k) can be funded through a short-term loan or bridging finance, though rates are higher. Private investment is another option to help with the deposit and development, but you’d give up some equity. Commercial mortgage rates are usually 4-6%, depending on your situation, so it’s possible to get this done without raising all the funds privately. Just make sure you have enough cash flow to cover the first 6 months before income starts rolling in!

advisergirl

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.

If you're planning to buy land and buildings, then cover development costs with income starting after 6 months, here’s some advice. You could likely secure a commercial mortgage for 60-75% of the property’s value, so on a £600,000 property, you might borrow £360,000-£450,000. You’ll need to cover the remaining amount—plus the £50,000 in development costs—through savings or private investment. Short-term development loans or bridging finance can help with the build, but they come with higher interest rates. Bringing in private investors is an option to fund the deposit, but remember, you’ll have to give up some equity. Commercial mortgage rates usually hover around 4-6%, so banks might cover a big chunk. Just make sure you’ve got enough cash flow to manage expenses until the income stream kicks in at the 6-month mark!

Bookworm105

advisergirl 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.

If you're planning to buy land and buildings, then cover development costs with income starting after 6 months, here’s some advice. You could likely secure a commercial mortgage for 60-75% of the property’s value, so on a £600,000 property, you might borrow £360,000-£450,000. You’ll need to cover the remaining amount—plus the £50,000 in development costs—through savings or private investment. Short-term development loans or bridging finance can help with the build, but they come with higher interest rates. Bringing in private investors is an option to fund the deposit, but remember, you’ll have to give up some equity. Commercial mortgage rates usually hover around 4-6%, so banks might cover a big chunk. Just make sure you’ve got enough cash flow to manage expenses until the income stream kicks in at the 6-month mark!

newbie building up a post count ?
this thread is 4 YEARS OLD - assume OP sorted their financing out long ago