With turbulence in the commercial property sector, there are plenty of opportunities for clients to make a great property acquisition. Unfortunately, however, access to funding for commercial property has become scarcer.
We have seen traditional sources - like the mainstream banks - limiting their funds or withdrawing them altogether. Additionally, when banks do approve commercial mortgages, it can be a long wait for the funds to drawn down, often resulting in three to four months wait.
This is where bridging can be a great asset, as one of its main benefits is speed. A commercial bridge can be completed and drawn down within five to ten days, whereas a bank is unlikely to have even achieved a credit approval within this time frame. Indeed, it's not good to hurry a bank as it's likely that their credit proposal may be rushed and incomplete as a result; this can delay the credit decision further or provoke an early decline from the bank.
Often banks will attempt to rewrite existing facilities as part of a larger funding package. This is usually down to a commercial decision, where the existing margin was agreed before the economic down turn, at attractive rates from as low as 1 per cent over base. Repricing is merely a means to achieve future profitability for the bank. Unfortunately, it's the client who is compromised with conforming to today's margins, which can reach 5 per cent over base rate.
It's also likely that the former facility had a capital holiday, whereas current facilities tend to have aggressive amortisation with higher capital repayments too. A commercial bridge, therefore, is now a realistic short term funding solution.
We regularly see clients capturing property opportunities where they have purchased at auction or from receivers. They will benefit from a forced sale purchase price, but will need to complete any deal within a limited time frame. A commercial bridge is, again, the ideal solution.
There is also a potential issue to consider when a commercial bank will not lend at all due to a need to prove income. Lenders can often assist by injecting money into a project to complete a refurbishment, before waiting for the client to let out the property to tenants and prove serviceability in order to obtain a commercial mortgage.
Below shows a summary of reasons why many clients are using Greenfield Capital's commercial bridging:
• Bridging to purchase equipment or to fulfil a large order;
• Business expansion where potential turnover cannot be proven;
• To support a purchase where a speed is necessary to secure a discounted price;
• Banks’ withdrawal of funding on existing commercial mortgages.
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