In the property sector, large numbers of professionals utilize business loans to finance property development, including landlords, developers, and investors. There are different ways to finance property development- the most famous funding options available are commercial mortgages, bridging loans, and refurbishment mortgages. In this article, we look at different ways to finance commercial property development.

Best Funding Options for Commercial Property Development

Commercial Mortgage

It is a mortgage loan secured by commercial property such as an apartment complex, industrial warehouse, office building, or shopping center. Many people utilize commercial mortgages to acquire, refinance, or redevelop commercial property.

This type of funding option can fulfill the needs of the borrower. Commercial mortgages are mainly for people who are looking to buy land or property for commercial use. You will need certain documents in order to apply for a mortgage loan, including:

• Tax return
• The details of your partners and directors
• Performance figures (Both projected and current)
• Recent bank, liability, and asset statement records

Why commercial mortgage?

This type of funding option allows structuring repayment either with variable or fixed interest rate payments. A commercial mortgage can be used for more than just buying a property. You can also use this type of mortgage for:

• Develop new property
• Develop existing property
• Buy land
• Commercial developments
• Extend current premises

Mortgage Finance

When you are looking for funding for commercial property development, you have the option to take out a mortgage loan that offers different advantages. Here are some important benefits of getting a commercial mortgage:

• Allows you to borrow a substantial amount
• Pay lower rates than unsecured loans.
• commercial mortgage offers flexibility

Bridging Loans

Bridging finance or bridging loan is a type of property development finance used until a company or individual removes an existing obligation or secures permanent financing. This short-term funding solution allows businesses to meet current obligations by offering immediate cash flow. You can use different forms of collateral, like inventory or real estate to secure your bridging loan. Due to its short-term nature, bridging loans include high-interest rates. You can utilize a bridging loan calculator to figure out the interest, charges, and other costs associated with a bridging loan. 

Bridging loans are one of the best ways to finance commercial property development. If you have plans to build a property from the ground up or are looking to do more extensive work on your existing property, you can take a bridging loan to fulfill immediate fund-related requirements.

Bridging Finance for Commercial Property

Property developers should typically consider short-term loans when their development is classed as ground-up development or heavy refurbishment.

• Ground-up development: It includes the construction of new development from a new piece of land.
• Heavy refurbishment: It involves changes in a property’s aesthetics, including rewiring, replumbing, and moving or knocking down internal walls.

Additional and immediate funding is essential for extensive property developments. Here the bridging loan plays an important role. It helps to fill immediate fund requirements. This type of loan is perfect for developers looking to redevelop the property to increase its potential sale value. Here are the benefits of bridging loan:

• This type of loan helps to arrange funds quickly 
• Offer immediate funds with a great deal of information such as lending history, proof of income and financial position of the business
• Bridging finance is a form of asset-based lending
• No excessive fees
• You can use a bridging loan for a range of legal purposes

Refurbishment Mortgage

It is a different form of development finance that offers funds for development and renovation projects. Many property developers utilize auction finance to raise funds for property development. This type of loan can be an ideal tool for property developers or investors aiming to upgrade a property.

Depending on the scale of the refurbishment, the development finance can either be a heavy’ refurbishment mortgage or a ‘light’ refurbishment mortgage.

• Light refurbishment finance:  It is used for the property that only has ‘light’ upgrades. For instance: fitting a new kitchen, fitting pipes, installing healthy systems, electrical rewiring, installing new windows, and non-structural improvements. This type of finance would be applicable for houses or properties that don’t require any planning permission.   

• Heavy refurbishment finance: It is used for the property that only has ‘heavy’ upgrades. For instance: property extensions, structural work, and conversions. Due to the nature of heavy refurbishment projects, finance is often required for a minimum of 18 months.  

The lender will need to know:

• The cost of the refurbishment, including a contingency budget
• Anticipated rental income
• How much the property will be worth after the refurbishment
• They will also access other standard criteria such as your credit score

Mortgage Finance

A refurbishment mortgage is a different form of finance ideal for conversion and renovation opportunities. In addition,  It can also cover the purchases and refurbishment costs. If you can’t get a standard mortgage on the property, this short-term refurbishment loan can be a perfect option for you. It normally runs for between 12 to 18 months. It usually releases funding in two parts- the first one when you purchase the property and the second one when the work has been completed.   

Refurbish mortgage rates and other associated costs will often depend on the circumstances of the applicant and the property itself. Normally, rates for this finance start around 5% and can vary according to heavy refurbishment projects. There are different conditions where refurbishment finance is not eligible. For instance:

• The Unregistered property 
• The property suffers from rot, damp, or flooding
• Leasehold properties with a short lease.
• Planning permission is missing

Final Words

Securing finance for commercial property development can be hard. But, this does not mean that securing finance for commercial property development is impossible. With the correct advice from a financial broker and the right funding option, you can significantly maximize your chances of success.

UK Property Finance is a trusted and leading provider of all types of property development finance loans. Contact us immediately If you want to finance either a comprehensive renovation or a new building project. Our finance specialist will offer the right funding advice and solution for your development project.