Our latest guide centres on the popular commercial property finance solutions available in the market today. We’ll look at the different types of financial support through which your firm can take advantage of its acquired premises and subsequently examine recent successes and struggles for the UK retail sector that might further inform your product selection.
Commercial Property Finance solutions
As with many of the business financing facilities that UK firms employ to boost their working capital and growth ventures, commercial property finance is by no means limited to a single one-size-fits-all solution. Whether your firm hopes to purchase new premises for the next fiscal quarter, fund property development projects in collaboration with other companies, or fulfil another objective entirely such as LPA receivership, there is different support available for almost every situation.
For SMEs still finding their feet in their chosen sector, the prospect of purchasing their first premises might justifiably appear as financially intimidating as it does strategically imperative. Taking out a commercial mortgage can alleviate much of this concern, however, with a firm securing their desired property via an initial charge then repaying the remainder of the cost over a pre-agreed period of time. Lenders will require evidence of your business’ profitability when arranging the mortgage, but the benefits are numerous, with the mortgage often covering up to 75% of the property’s purchase cost and many arrangements spanning as far as 30 years if necessary.
Where commercial mortgage terms can range from a few years to multiple decades, bridging finance facilities focus more on the short-term, frequently being utilised by property developers / investors during property purchases. In some cases businesses will make use of bridging finance to temporarily access the funds needed to acquire new premises while selling their previous site of operations. In other cases bridging finance will provide cashflow support as a firm submits their bid in a property auction or between sale and completion dates. Firms requiring quickfire support in this area should certainly keep bridging finance in mind as an option.
Mezzanine finance, another commercial property finance solution aimed at developers in particular, enables access to the monies needed in order to fund upcoming or ongoing property projects without risking significant working capital / cashflow streams in the process. This hybrid product incorporates strands of equity investments and debt financing to provide rapid cashflow boosts, but simply put can prove invaluable for any property developers uncertain as to their ability to finance current / future works undertaken with their partners.
Unsecured business loans
Unlike secured business loans, which would often require a business to use its premises as collateral and thus inhibit its ability to sell the property / purchase new sites, unsecured business loans carry no such stipulations. This popular facility essentially combines the strengths of commercial finances and mezzanine finance, offering the flexibility to secure either short- or long-term cashflow support depending on your business’ current profit levels and the nature of the property project or purchase at hand. Be sure to read our quick business loans guide for further details on the flexibility of the loan terms and amounts involved.
Retail successes and struggles
Were we to base the extent of the UK retail sector’s need for commercial property finance on recent Office for National Statistics (ONS) industry data, then the initial findings might appear rather contradictory; the ONS’ May 2018 retail sales report recorded the amount spent in retail stores that month as having risen by 1.6% compared to April and 6.3% on the previous year, with food and household goods spending seemingly bolstered by the Royal Wedding as well as the country’s ongoing heatwave. Indeed, this upward surge for the Retail Sales Index extended to the quantity of items bought in May too, with 1.3% more products purchased month-on-month and 3.9% year-on-year.
Online sales have driven much of the retail sector’s aforementioned affluence in the past 12 months, now comprising 17.6% of clothing store sales, 5.8% for food sellers and 17.4% for the department stores whose trade had previously relied so much upon their in-store physical sales. It should hardly come as a surprise, then, that we’ve seen industry leaders like Toys ‘R’ Us, Carphone Warehouse, Mothercare, M&S and Debenhams all announce store closures in recent months, with the latter chain’s woes evidently set to persist after issuing its third profit warning of 2018 in June.
Is now the right time?
If these retail sector developments have prompted your business to reconsider how to utilise and / or expand its current property portfolio without putting its own survival at risk, then now might be the time to look at one of the commercial property finance solutions that we’ve discussed here.