An introduction to commercial mortgages for factories and warehouses
Manufacturing has long been one of the staple industries in the UK and is currently responsible for half the UK’s exports and a sixth of its GDP, which makes the sector an attractive proposition for many entrepreneurs. However, raising appropriate finance to purchase a factory or warehouse can be complicated.
This article provides an introduction to what the high street banks and other commercial lenders will consider when deciding whether your application for a commercial mortgage is accepted or rejected.
What is a commercial mortgage?
A commercial mortgage can be used by both start up or existing businesses to finance the purchase of buildings or land and to make improvements or modifications. It can be arranged through a high street bank or through a commercial lender and can provide up to 85% of the purchase price; however this will vary depending both on the value of the property and on the maximum loan-to-value ratio of the individual lender.
The lender will normally require a deposit of 20-30%, and will want proof that the repayments can be met. Existing businesses will need to provide a full set of trading accounts covering the last two years, while start ups will need to provide a full business plan showing the expected income projections.
How raising a commercial mortgage for a factory or warehouse differs from other sectors
The manufacturing sector is sensitive to fluctuations in the economy, with 42% of factories reporting below average volumes of orders in a recent CBI Industrial Trends Survey. Although these businesses expected to see an improvement in early 2006, it is believed that the sectors’ profit margins would continue to remain under pressure.
However, even taking these reports into account, there are still a wide range of high street and specialist commercial lenders willing to consider financing the manufacturing industry, as the overall profitability and growth opportunities in the sector remain strong.
Each lender will want to know:
- The trading history of the business or relevant income projections for a new venture
- Whether you have experience in the manufacturing sector
- The location of the factory or warehouse
- The amount of deposit you have available
- Whether you have an adverse credit history
A thorough survey of the land and buildings will need to be carried out on the property or business you plan to purchase. The survey may highlight any contamination or environmental issues that could deter lenders from funding the purchase, and may also highlight any potential issues with access roads.
The current valuation of the business will also be taken into account when considering your application for a commercial mortgage. You may find that some lenders will provide access to funds based solely on the value of the property or buildings, while others will take into account the value of the whole business.
If you initially struggle to achieve the interest rate you had targeted it is worthwhile keeping in mind that you will have the opportunity to re-mortgage with another lender to achieve your optimum rates and terms at a later date.
While it can be difficult to raise a commercial mortgage to start up or expand this type of business, with the right advice and guidance you could be opening the doors to your manufacturing empire in no time.
Contact us to find out more about how The Diverse Finance Company can help you raise a commercial mortgage or take advantage of other business finance solutions.
Copyright © 2006 The Diverse Finance Company
