Mortgages & Factoring

Guide to Commercial Mortgages

A commercial mortgage is probably the best way to finance the purchase of buildings and land for business purposes - it provides the most flexible and affordable finance solution. With commercial mortgages, the lender has a legal claim over the property until the loan has been repaid in full.

Commercial mortgage loans can be split in two distinctive categories, "owner occupier" - the borrower is purchasing a business premises and "commercial investment" the borrower is purchasing property as an asset to rent.

The commercial mortgage market is characterised by complexities not present in the Residential and Buy to Let markets. The market in general does not feature the dynamic and highly competitive price points seen in the domestic market; however there are increasing numbers of lenders offering tranches of fixed rate money for small and medium sized loans.

Unlike simple calculation approach employed in the domestic market to make lending decisions, the commercial market is based around complex pricing models and the verdict of lending panels at each individual institution. All lenders, above a certain minimum loan value (normally £500,000), will go to the money markets and price up a transaction based on a bespoke margin and SWAP rate price (the rate banks and building societies lend each other money).

In simple terms, loan to property values are dependent on industry sector and proprietor circumstances in the owner occupier arena, and by the quality of tenant in the commercial investment market. In general however for small or medium sized loans a good yardstick for the borrower to consider would be an approximate maximum loan to value of 75%; however certain lenders will offer 80%+ loan to value in some cases.

Other banks will insist on a rental coverage ratio, i.e. the estimated rental should cover the mortgage payment by a certain percentage. 130% is an often-quoted ratio. For example the bank¹s valuer estimates that an office block will bring in £72,000 per annum in rent. Their rental coverage ratio is 1.3 (130%) which means the maximum annual interest amount on the mortgage will be £72,000 / 1.3 = £55,348. Assuming an interest rate of 6%, this means they will lend a maximum of £923,000.

The length of a commercial mortgage loan period will tend to be a maximum of 25 years and is often around the 15 year mark.
Borrowers should also be aware of the fees in the commercial mortgage market, typically there will a lender fee of 1% and a more expensive commercial valuation than would be applicable to a similarly valued residential property. Given the nature of the complexity of titles and covenants on many commercial properties, a higher legal cost will be incurred, not only through the borrower's own solicitor, but in many instances the lender uses their solicitor in parallel to validate the quality of the work, this cost also needs to be factored in.

The value of a Business Finance Trust within this field cannot be overstated, due to the bespoke nature of every single commercial mortgage transaction. We know what we are able to achieve for the customer and be able to negotiate the best rate with lenders.

Factoring In A Nutshell

• Factoring boosts your cash flow by providing an immediate injection of cash into your business against the value of your outstanding invoices.
• When you raise an invoice, you can release up to 85% of the value of that invoice within 24 hours. The remaining 15% is paid to you, less a small service fee, once we receive payment from your customer.
• Your business has access to an ongoing supply of cash linked to your sales so as your business grows so does the amount of funding available to you.
• We will prepare and send out statements, telephone all of your customers, collect payments for you and maintain professional and detailed accounts of your transactions.
• You remain in control by working with a dedicated team of people who ensure your customers are as happy to deal with us as they are with you.
• By working with a Factor, it means that as well as a significant reduction in debtor days and improvement in cash flow, valuable management time can be spent driving the business forward.
• By making use of a factoring facility you can benefit from improved profitability as you can pay suppliers earlier, buy in larger quantities and take advantage of any volume discounts.
• Factoring service provides a flexible supply of working capital giving you the time to realise your plans.

Confidential Factoring - What Is It?

Confidential Factoring service means that we can help you improve your cash flow by providing an immediate injection of cash against the value of your outstanding invoices. Then as you raise an invoice, we can release up to 85% of the value of that invoice within 24 hours. The remaining 15% is paid to you, less a small service fee, once we receive payment from your customer.

This means your business has access to an ongoing supply of cash linked to your sales. So as your business grows so does the amount of funding available to you.

In addition to the cash that we provide, we can also save you valuable management time.

We provide a confidential sales ledger management service where we chase and collect outstanding invoice payments from your customers in your name. We will prepare and send out statements which will carry your logo, telephone all your customers in your name, collect payments for you and maintain professional and detailed accounts of your transactions, so that you have more time to concentrate on generating new business.

With our Confidential Factoring service you can also choose to have a  Purchase Card (at no additional cost), which means that you can use the funds we make available to make purchases as and when you want. All transactions made on your purchase card will be reported on your normal statement. Additional cards can also be made available for members of your team to cover fuel purchases, lunch, expenses etc.

You remain in control by working with a dedicated team of people who ensure your customers are as happy to deal with us as they are with you.

Non-Recourse Factoring - What Is It?

Our Non-Recourse Factoring service means that we can help you improve your cash flow by providing an immediate injection of cash against the value of your outstanding invoices. Then as you raise an invoice, we can release up to 85% of the value of that invoice within 24 hours. The remaining 15% is paid to you, less a small service fee, once we receive payment from your customer.

This means your business has access to an ongoing supply of cash linked to your sales. So as your business grows so does the amount of funding available to you.

Our added bad debt protection provides you with peace of mind that you will get paid even in the event of one of your customer's insolvency or inability to pay.

In addition to the cash that we provide, we can also save you valuable management time. We provide a complete sales ledger management service where we chase and collect outstanding invoice payments from your customers, so that you have more time to concentrate on generating new business. We will prepare and send out statements telephone all your customers, collect payments for you and maintain professional and detailed accounts of your transactions.

With our Non-Recourse Factoring service you can also choose to have a  Purchase Card (at no additional cost), which means that you can use the funds we make available to make purchases as and when you want. All transactions made on your purchase card will be reported on your normal statement. Additional cards can also be made available for members of your team to cover fuel purchases, lunch, expenses etc.

You remain in control by working with a dedicated team of people who ensure your customers are as happy to deal with us as they are with you.

Export Factoring - What Is It?

Our Export Factoring service offers you a complete package to help you develop your overseas business profitably and with confidence.

Not only do we provide an immediate injection of cash against the value of your outstanding export invoices but then as you raise an invoice, we can release up to 80% of the value of that invoice within 24 hours. The remaining 20%, less a small service fee, is paid to you once your customer pays.

This means your business has access to an ongoing supply of cash linked to your sales. So as your overseas business grows so does the amount of funding available to you.

In addition to the cash that we can provide, we also remove the hassle of dealing with overseas customers, by chasing and collecting outstanding invoice payment from your overseas customers. Working with you, we decide whether to use the services of our in-house multilingual team or to use our worldwide network of associated factoring companies.

We will prepare and send out statements and telephone your overseas customers, always communicating with them in their language. We will collect payments for you, and maintain professional and detailed accounts of your transactions.

We can also help in smoothing out the problem of fluctuating exchange rates by offering multi currency facilities. We have overseas bank accounts for fast, low cost receipt of payments.

We can also offer up to 100% credit protection.

You remain in control by working with a dedicated team of people who ensure your customers are as happy to deal with us as they are with you.

Factoring - How Much Does It Cost?

Our services are tailored to your business so the fees will depend upon your specific needs.

There are two types of fee. The first is the cost of the money you use, which is extremely competitive when compared with other forms of finance. The second is a service fee.