An introduction to commercial mortgages for Post Offices

The local Post Office is often at the heart of the local community. In rural areas a sub postmaster agency may enable entrepreneurs to provide Post Office services alongside the village shop (with the approval of Post Office Ltd), while in urban areas a Post Office franchise can provide a tried and tested business opportunity.

In either case it will be necessary to raise appropriate funds to purchase the business and a commercial mortgage is one option available to prospective franchisees or agents. 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 Post Office franchise differs from other sectors

The postal sector is undergoing an intense period of change, with a ‘reinvention’ programme seeing the closure of more than 2,500 urban branches by 2005 and the possibility of closures in rural areas from 2006 if the government revokes its ‘no avoidable closures’ of rural post offices clause. In the meantime a sub postmaster agency agreement or Post Office franchise continues to be looked upon favourably by lenders.

Whether you approach a high street bank or specialist commercial lender, they will want to know:

• The trading history of the business
• The amount of deposit you have available
• Whether you have retail experience
• Whether there is any residential space attached
• Whether you have an adverse credit history

In addition, the lender will be interested in the location of the premises as this will go some way to determining the type of agreement, whether sub postmaster agency or franchise, that you undertake with the Post Office. Rural branches are likely to be sub postmaster agencies run in conjunction with other businesses, such as a local shop. These agencies cannot be sold without the agreement of Post Office Ltd (POL), and your lender will need to be assured that POL has agreed to appoint you as sub postmaster.

Suburban and high street branches however, tend to be operated on a franchise basis and may be looked upon more favourably by lenders.

If you have been approved for a commercial mortgage to purchase a Post Office franchise or agency, and have struggled to achieve the interest rate you had targeted, it is worth 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.

An independent intermediary can help you find the best commercial mortgage for your situation. They have the knowledge and experience to negotiate with a wide variety of lenders on your behalf. So with their help, hopefully you’ll be chatting with regular customers and dispensing advice in your own Post Office franchise or agency 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 raising solutions.

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