INFORMATION

• Why Use a Commercial Finance Broker
• What is a Commercial Mortgage?
• The Commercial Mortgage Process
• Common Problems
• Other Services from SLJ Commercial Finance
• To Buy or Rent Premises
• Funding for Residential Property Development 
• Steve Jones - A Personal Profile 

Common Problems

Loan to Value Ratios (LTV) – all lenders have criteria with regard to how much they are prepared to lend against a particular property and also with certain industry sectors. These vary considerably and can be as low as 55% and as high as 100%. It is not unusual for a client to require a higher percentage than many lenders are happy providing.

Investment Properties – in addition to the LTV the lenders will require that the income generated from the property covers the finance costs with a suitable margin (often 125%) This could mean that a commercial mortgage will be reduced from what was considered to be an acceptable LTV as the income (i.e. rent) is insufficient. Two other aspects with investment properties are

• The term of the lease(s) – there may be difficulties if the tenants lease expires in a relatively short term compared to the term of the mortgage.
• The strength of the tenant. If it is a start-up business some lenders may be uncomfortable with a high LTV even if the rent is at an adequate level.

Long Leasehold Properties. The majority of commercial properties are freehold, however some are what are described as ‘long leasehold’. This is usually where the property is held on a lease greater than 50 years to expiry. The remaining term can impact on funding available as lenders have differing criteria as to what is acceptable.

Professional Valuations – All lenders will require an independent assessment with regard to the value of a property and will generally appoint a firm with the requisite skills and professional qualifications. Most lenders have a panel of valuers from which to choose. The valuation report can give rise to a number of issues;

• The basis of the valuation, i.e. 90 day, 180 day, open market, as a going concern etc (lenders have differing requirements which can impact on the amount of commercial funding available)
• The valuation indicates a figure less than the client anticipated (not unusual). Most lenders will provide a commercial mortgage based on the purchase price or the valuation, whichever is the lower. This could therefore mean that a client will be required to contribute more cash to the deal than envisaged. Clearly if the figures are significantly different then it does give the client the opportunity to re-negotiate the purchase price.
• The valuation report indicates the requirement for separate professional reports, these could include, dry rot, damp, electrical, drainage, asbestos, full structural, roofing reports etc. These will undoubtedly involve additional expenditure and of course also time delays. If the property is in a poor condition then a lender may wish to withhold some of the mortgage monies(i.e. a retention) until certain works have been undertaken.
• For investment properties the basis on which the property is occupied and the strength or otherwise of the tenant can impact on the value. Lenders will generally require a formal commercial lease to be in place the wording of which they will want to examine, prior to any funds being made available.
  

Poor Credit History – It can be more difficult to arrange a commercial mortgage for a client with County Court Judgements or other adverse credit entries on the Registers. SLJ Commercial Finance is accustomed to dealing with this situation and has a number of specialist lenders who are very happy to lend in this sector.
No Trading Figures – although many lenders require provision of audited accounts there are now other lenders who are happy to provide commercial mortgages on a self certification basis. Once again SLJ Commercial Finance is accustomed to sourcing finance for this type of client.

Legal – problems in this connection can cover a number of different areas most of which can be overcome but at additional cost and time. Many lenders will use the services of independent solicitors and so it is not uncommon for three firms to be involved in the same transaction. (lenders, purchasers and vendors). It is strongly recommended that a client appoints a solicitor who is experienced in dealing with commercial property as the transaction although similar in some ways is nevertheless quite different to a domestic house conveyance. SLJ Commercial Finance has established relationships with a number of commercial lawyers and will be pleased to effect introductions as required.