Monthly Archives: February 2019

What is Development Finance?

While the name might seem intimidating, your first guess was probably right: development finance is the investment into building a business property or development. The reason why this is so popular is because once extensive work has taken place on a property or plot of land, it is worth much more in the future.

Once you decide to undertake a property development project as a business, you may realise that some funding is needed to achieve the results you need. If the project requires what is referred to as work from ‘the ground up’ and you are essentially buying a plot of land, it’s likely that you will seek out development finance from a lender to help with the cost of the building work. However, development finance can cover a number of different types of projects, which can include:

• Residential properties
• New-build
• Commercial properties

What does it cover?

First of all, if you’re looking just to refurbish aspects of your business’ property, then you might not need development finance as such. For smaller refurbishments, you might need what is referred to as a ‘bridging finance.’ If you need a lender to pay for a generous proportion of a large-scale project, then development finance might be needed. For example, the lender might pay for half of the cost of purchasing the lot and then anything from 60 – 70% of the total building costs. The benefit of financing it this way is that the business taking out the finance does not need funding for the entire project; they get to finance for around half of the entire development. It’s worth remembering though that development finance covers part of an extensive project, not just feature work.

How does it work?

As with any business loan, you will need first to agree a set amount you need to borrow. Once you are accepted for this amount, you will begin paying it off in monthly instalments. In some respects, it’s a little bit like a mortgage – but not entirely. Unlike a mortgage, this is a short-term loan. Instead of the estate agent evaluating the value of the property, the lender will assess how much the property is worth and then agrees on a total. This total will also be partially based on the business’s finances, too.

Will I be accepted?

This all depends on the financial state of your business, and all your research beforehand. You will need to show any necessary planning permission, and ideally a property portfolio of previous, successful projects. On top of this, development finance is just like any other loan. You will need proof that the loan can be paid back, and that your company possesses a good credit rating.

Property development can be incredibly lucrative for many businesses, and undertaking a sizable development can come with a hefty loan to cover the costs. However, adding another example of your business’ financial prowess to your property portfolio could make taking out development finance a wise and fulfilling endeavour. As ever, it’s advised that you seek advice in terms of what is required from your company with paperwork and planning; don’t hesitate to contact us today for further guidance.

Commercial loans: What are The Pros and Cons?

If you are business and are considering taking out a loan to cover start-up, running or expansion costs, you may have some questions lingering in your mind. You might be wondering what the benefits and drawbacks of business loans are, and how this could directly affect your business.

Pro: Fixed and low-interest rates

One benefit of being a business, which is looking for a business-sized commercial loan, is that banks with reward you with low-interest rates which are set for a fixed period. The financial bonus of this is that you won’t see your business loan repayment total take exponential hikes every month.

Pro: You can predict how much you owe

When you take out a business loan, you will know exactly how much you owe each month. You will reach a pre-agreed payback rate with the lender, although there may be charges for repaying the total early. The reason for this is that lenders can make a loss by customers repaying the rest of the loan early. However, knowing you have regular repayments due makes paying back the total amount much more stress-free, and you can plan other business expenditures around it.

Pro: A secure, professional service

Receiving a business loan from an official professional lender should put your mind at rest when it comes to the security surrounding it. Applying for money from peer-to-peer lenders, for example, can be far less secure. If you are considering forms of lending like this for the low interest rates, it’s worth remembering that you won’t receive government protection from a peer-to-peer lender.

Con: Interest rates vary over time

Interest rates can be low on commercial loans, but this is sometimes determined by how well the economy is performing. The price of your fixed interest rate is essential to counter the cost of any future inflation. Your interest rate deal may very much be a product of the times, and not how well your business is performing.

Con: Collateral

Some lenders may ask for your business to list some assets, which they can then seize, as a consequence of you not repaying your loan. It can be particularly intimidating for new enterprises, which may be looking for a commercial loan to cover their start-up costs. Sometimes personal as well as business assets can be included in this.

Con: Start-ups will need to answer more questions

As anyone who has started up a business will know, part of the beginning process of a company will involve a lot of a lot of proving yourself. Unfortunately this applies to a commercial loan too, but hopefully, you will have anticipated this already. Getting your credit score checked, having a strong business plan, and proving your intentions to the lender will all help make this first step far easier. Yes, you will have some paperwork to do, and collateral may be part of it, but watching your business flourish should make it all worth it. Our business planning service can assist you in creating a great business plan, along with a financial forecast, which is incredibly integral for monitoring expected expenses and incomes.

As with any investment, there are some pros and cons to consider before signing the paperwork. However, when you take out a commercial loan, the chances are you’re doing it to secure the future of your business. With a practical strategy, and safety measures in place, you should soon begin to see your investment pay off.

What’s the Best Way to Secure a Business Loan?

For some, securing a business loan can be a vital way of temporarily paying for some of the daily running costs of the company. For others, it can be an exciting phase in the very beginning of setting up a business. Whether you’re a new business owner or someone who is looking to cover some overheads temporarily, you will still need to undergo the process of applying for a business loan. So, what can you do to make sure you secure one?

Have a set budget that you can stick to

To set a budget, you first need to determine what this loan needs to cover. A few considerations include:

• The fundamental costs of starting it up in the first place
• Overheads: how much it costs to run your business day-to-day
• To get your business more prominent than it currently is

Once you’ve settled on what it is that your business loans need to cover, you’ll need to do the maths and figure out how significant an investment you will need to cover the costs. It’s also recommended that you decide what type of loan it is that you need to finance any of these issues.

What is your cash flow looking like?

Once you’ve worked out how much you need to borrow, you’ll need to be confident that you can begin to pay it off. Taking time to assess what your cash flow is like, and whether it’s enough to pay back the loan in instalments successfully, is a fundamental safety step. Our expert cashflow planning service is the ideal way to plan, monitor, and manage your business’s money effectively. What’s more, before approaching a lender, it’s also advised that you check your cash flow statement is accurate. You want to ensure that the process moves on as swiftly and smoothly as possible and removing any discrepancies can help secure your chances.

Check your credit score

For many businesses, this can be the real nail-biting phase. It can be especially hard if you haven’t been trading for very long, too. Before you begin researching the best business loans, it’s worth checking in with a service that checks your business’s credit score. If the result wasn’t quite as you’d hoped, you should seek out some tips on how to improve it. It’s also worth checking to see if public records of your business finances match your current financial status, as it’s likely that some lenders may review public data on how your company is performing.