Bridging & Commercial | Commercial Clinic

Most Recent Questions

Question:I would be interested to know if you're aware of any commercial lenders/ funders that will offer medium to long term funding on an equestrian centre in Berkshire (value of £1.2m). House, yard and paddocks. Currently debt of £450k with Arbathnot Latham, looking for refinance, client inherited business and is 2 years behind reporting to HMRC which is in hand. Business is now really picking up with a major trainer housing his horses at the yard now.

click to view answer

Lucy Hodge of Vantage Finance: Finance is available in this sector for an asset such as the one described, however in today’s market lenders are very much focused on the ability of the borrower to service the debt. Although this has always been the case to an extent, there was a time pre credit crunch that this was scrutinised less in the credit application process.

Lenders are reluctant to look at management figures and projections, they want to see trading history and calculate borrowing against the reported numbers, so although you state that the business is really picking up it will be very difficult to place the loan onto new medium to long term finance without a good length of track record to demonstrate that the business is robust and in a position to meet future obligations.

What might help is if the trainer is contracted in for a certain length of time so that the income is a little more secure, however my gut feeling is that if the turnaround is a fairly recent development it may be a struggle to place this at this moment in time despite to loan to value being so low.

Some other considerations are, firstly - experience, you mentioned that the client inherited the business which might suggest that they have not previously ran a business of this nature, however this is unclear from the enquiry. Lenders would want to see that a client had relevant experience for running a business of this nature especially given the specialist nature of an equestrian centre.

The second is who is going to live in the house, it is important to establish whether it is the client or their immediate family, and how much of the total habitable area the house accounts for because some lenders will not be able to, or prepared to lend whether the house is occupied by the client or their immediate family.

Lastly, the fact that the business now has it in hand in respect of reporting to HMRC was a little ambiguous, and the situation to date would need to be fully understood before talking to any lenders.

Question:Does Shawbrook lend on guesthouses and if so what is the LTV? Also what is LTV based on FMV or 90 day OMV? Alternatively,is LTV based on bricks and mortar value or going concern value? Also, does Shawbrook lend on farms, i.e Arable farms in Scotland? Again, what's the LTV?

click to view answer

Brian Walters from Newsource Commercial FInance said: Yes, Shawbrook will lend on guesthouses up to 75% of the lower of purchase price or MV2 (bricks and mortar). Tenants purchasing at a discount can borrow up to 90% of the purchase price providing loan does not exceed 75% of MV2.

To qualify they will need to have been in the property more than 12 months.

In order to assess the proposal Shawbrook will need details of the applicant's experience in running this type of business and will want to see the last three years accounts of the business in order to assess profitability and serviceability.

If the application is agreed Shawbrook will require a business valuation report by a panel valuer such as Pinder & Co to provide a full assessment of the current and projected trading position of the business.

Answer to 2nd question: Unfortunately not - the agricultural sector is not covered within Shawbrook's current lending policy/product range.

Question:Guest House / B&B mortgage? I have a client seeking to buy a guesthouse, looking for 75% LTV ideally on full offer price - or as near as we can get. B&M val = £375k Full price = £425k Property is south coast, accounts for 3 years etc.

click to view answer

Neil Pointin of B&P: Whilst in theory it is possible to obtain 75% LTV, in practice it is not so straight forward as most lenders will lend against the “bricks and mortar” value. This sector is also still one where lenders tread carefully. The most important issues will be the level of experience and the strength of the trading accounts for the target business. If these are good and their background circumstances are good, then you would have a fair chance of getting near to 75% of the bricks and mortar value or 65% of the going concern value.

Question:I have a client with 3 new wooden lodges surrounded by fishing lakes. This was recently mortgaged with Nat West with £300k over 15 years and £45k over 3 years. The valuation came out at £500k MV1 and the rates are very keen, however the repayments are causing concern due to the £45k over 3 years. Nat West have been approached by the client to no avail.! Is there any way that Shawbook or Key Partners are able to offer a solution for a consolidated refinance over a longer term of say 20 years.

click to view answer

James Hardwick of Charleston Financial Services: Thank you for your question, your client is already at 70% loan to value against the going concern value of the business, and you indicate this is at a keen rate, whilst you have not stated the rate I would assume with NatWest this to be sub 4%.

Unfortunately due to the nature of the business and the specialist nature of the security this is not something that we would be able to replace elsewhere, I would expect that NatWest lent an element of the loan over the shorter 3 year period for the same reason in order to decrease their exposure on the deal.

Thank you again for your enquiry.

Question:I have a client with a portfolio of Buy to Let properties in London mixed with some commercial all in the name of a limited company. The total value is around £16m. He has some mortgages with NatWest to a maximum of 35% LTV but a lot are mortgage free. He is considering raising some capital to invest in more property. How would one go about this with Shawbrook and any ideas on rates?

click to view answer

Lucy Hodge of Vantage Finance: Firstly, I would look at a detailed breakdown of the assets within the portfolio and ascertain the breakdown of residential Vs commercial. The pricing for larger loans with Shawbrook secured against residential security is very competitive with rates starting at 4.2% above LIBOR, and as such given the current level of gearing it might be best to look at carving out the residential assets initially to see if the level of gearing reached is sufficient for this capital raising exercise.

If after a comprehensive review of the mix within the portfolio we need to include the commercial security we would propose a solution on how this could be structured depending on how much your client is looking to raise day one, because staging the application might make sense to take advantage of Shawbrook’s existing borrower discount of 0.25% from either the margin or the arrangement fee. One of the big selling points here is that the loan can be taken on an interest only basis, which is a feature we have seem slowly fade out from mainstream Bank lending, but is a crucial feature for many property investors. The maximum stated exposure per client is £10,000,000, however where the Bank can really get behind the deal there is usually a will to explore taking this higher.

Once a structure has been agreed at basic level it is time to start on the client and property due diligence. This involves understanding the background and make up of the Limited Company and the background of it’s Directors and shareholders, their experience within the property sector initially. Clearly, proving experience here will be an easy task given that they have built a substantial portfolio. Personal details will be required from the Directors and shareholders, to include their personal assets and liabilities, details of income from outside of the portfolio if applicable. This and the other information I have mentioned is sufficient to submit an outline proposal, or AIP, however accounts and Bank statements are useful to have at this stage to ensure the case is properly assessed before sending the basic details required to Shawbrook for AIP .

It is worth understanding the clients investment strategy for further acquisitions and whether they have any potential property purchases lined up because at the next stage in the process Shawbrook would look for detail on this, especially where there is a large capital raise. If their existing facilities are expiring and the Re-Banking exercise has inspired the capital raising to tie the two in together this is fairly common, but where existing facilities are being replaced and the level of capital raising is particularly high the Bank might ask for a little more information surrounding this.

Once an agreement in principle has been obtained from Shawbrook it is time to go a little deeper into the due diligence process if your client is keen to take up the terms offered, and in an ideal world the Company Financials and Bank statements will have already been provided as outlined above. This leaves the property due diligence, and where there is a large mixed portfolio this can be a costly valuation exercise. This is one of the biggest hurdles in any deal, and given the value of the portfolio you would expect that the client has been diligent when putting together the figures, and perhaps even has had valuations carried out recently.

The process of course goes on from there, but I will not go through it from start to finish, this is just an overview of taking the enquiry from it’s infancy to a stage where formal approval can be obtained from the Bank.

Question:I have an elderly client - income is provable - with a commercial property portfolio of £1,000,000 with about £330k outstanding with Nationwide who wishes to secure a further £200K to invest in buy-to-lets. He has received an offer of bridging at 1.8% per month; however, we are researching alternatives. Maybe a commercial loan? Any ideas?

click to view answer

Brian Walters of Newsource Commercial Finance:The proposal itself looks sound at 53% LTV and one that we feel we could easily place as a commercial investment mortgage deal with a number of our lender contacts.

The offer of bridging finance appears expensive and inappropriate for the scenario described. The piece of information we would need to take this forward is a) the age of the applicant and b) what would be his/her ongoing plans for the portfolio?

Most lenders are uncomfortable lending where the applicant’s age exceeds 75 years or 80 years on expiry so I suspect that this is the reason for the difficulty in placing the deal. We are dealing with a lender that is prepared to take more of a view on these situations and are happy to progress this enquiry further on the broker’s behalf with the benefit of the additional information requested above.

Question:I have a client who is interested in bidding on a 2 acre piece of land near his property which he rents. He has his own business as a tree surgeon, his net profit for the last 3 years is around £30,000. he has no commitments other than the rent. The guideprice for the land is £25-30,000. Could he get a mortgage for this? How much deposit would he need? Many thanks.

click to view answer

James Hardwick from Charleston Financial Services Limited: Thank you for your enquiry, unfortunately this particular enquiry would be a difficult proposition to place in the current lending market due to the low value of the land, additionally the limited demand which would come with this type of security.

If your client has any other security that he could raise the mortgage on, for example any investment properties or commercial units, then we could assist with a capital raise to assist with the purchase as I would say this is the only route available.

Question:I am currently advising a Charity on the acquisition of a SW farm with revenues of £116k nett profit £73k. On acquisition they will trigger significant additional revenues of ~£1m, nett profit £660k from grants, expanding the farm activities and other sources/donations. The Charity workers currently draw no income from the Charity and have a combined income of ~£46k. They need £250k to exchange and a further £2.5m to complete, although the vendor is offering flexibility/instalments on completion and is offering to let them move in after exchange to start work on the farm and with clients. We are also discussing commercial arrangements with potential “donors.” Charity and vendors accounts available. Is this doable?

click to view answer

Neil Pontin of B&P: It is difficult to provide a precise answer on this as we do not know enough about the charity in question, the farm or the proposed additional revenues. However there are lenders that have an appetite to lend on farm purchases and indeed lenders that will lend specifically to charities. On the face of it the projected income should be sufficient to service a loan of £2.75m.

That having been said there will be some real challenges with this. The applicants will need to show that they the experience to run this type of operation, the lenders will need to be convinced as to the certainty of the projected income as this will be key and finally they will need to put in a reasonable deposit on this as realistic funding levels would be circa 70%. It is also highly unlikely that they will be able to obtain any monies on exchange of contracts as the lenders will not have any security at that stage. Monies would therefore need to be raised from existing assets or donations to meet the funds required on exchange.

Significantly more information is needed to assess this fully, however if the charity have the size of deposit required then it is worth pursuing further.

Question:I have a UK based corporate client that is seeking to acquire a commercial property in France. He needs a six month bridge of £5 million, which would represent a 60 per cent LTV. A first charge would be available on the French property. Are there any UK lenders who would consider such a proposition?

click to view answer

David Sampson, Operations Director at Omega Commercial Solutions:

As the security property in question is commercial and is located in France, I can't say I know of any UK bridging lenders who will fund this loan for those reasons.

1 2