September 1, 2022

What is Commercial Property Development Finance?

Put simply, commercial property development finance is a type of loan to cover the cost of purchasing or developing a commercial property. If you’re a developer or business owner, you can also use commercial property development finance to help you expand or relocate your business or make improvements to your property. 

Commercial Property Development Finance is available for:

  • Offices
  • Retail units
  • Warehouses and factories
  • Hospitals and medical centres
  • Care and nursing homes
  • Dental surgeries
  • Hotels
  • Pubs and restaurants
  • Garages and workshops

It’s also worth mentioning that most commercial property development finance loans are secured against the land or property being purchased or developed.

Do I Need Commercial Property Development Finance?

You may need to use commercial property development finance to buy a new property because you’ve outgrown your current premises or you might require finance on a ground-up development project. 

It could be that you want to extend your existing property to increase the available space or you need short-term finance for renovations and refurbishments.

Whether you want to renovate, refurbish or invest in a commercial property, there is a range of commercial property development finance products available to suit your circumstances. 

What are my Commercial Property Development Finance Options?

There is a range of commercial property development finance options on the market, and the right one for you will depend on your needs. Here are some of the products you can access to fund your purchase or project. 

Commercial Mortgages:You can use a commercial mortgage to purchase a commercial property, such as an office building or retail units, in which you intend to run your business. Sometimes called business mortgages, commercial mortgages can also be used if you want to buy a commercial property to rent out to another business. Commercial loans tend to be more expensive than standard mortgages, and lenders will check that the rental income from a lease will cover the interest payments.  

Semi-Commercial Mortgages: A semi-commercial mortgage will appeal to you if you want to purchase a property with residential and commercial uses. For example, a shop with accommodation above or a pub with a residential living space. These types of properties are often called mixed-use or semi-commercial, and a semi-commercial mortgage will apply if you want to buy both the commercial and residential elements of the property.  

Bridging Finance: This is a type of short-term loan that usually lasts around 12 months and is ideal if you need quick access to funds to purchase a property or complete building or renovation works. A bridging loan is essentially a loan you use to ‘bridge’ the financial gap between buying and selling a property or to bring in immediate cash flow to cover building or development costs.   

Mezzanine Finance: This is sometimes called ‘top up’ funding for large commercial development projects. It’s a short-term loan that bridges the gap between your equity or funds and the amount provided by the initial lender (which holds a first charge) and is secured by a second charge on the property. A mezzanine loan not only helps you overcome financial shortfall so that you can complete your project, but it also enables you to achieve maximum return with minimum cash contribution.

Auction Finance: When it comes to purchasing a property at auction, you have to pay a 10 percent deposit and complete the sale within 28 days. If you want to buy a commercial property at auction but don’t have enough cash to do so, auction finance can provide the funding you need. Auction finance allows you to arrange the funding in advance and, in most cases, can be in place within days. By borrowing the money before auction day, you can bid and buy the property at auction with confidence. 

Do I Qualify for Commercial Property Development Finance?

As many lenders in the UK tailor their products to suit specific needs, the eligibility criteria can vary. Some lenders prefer to lend to experienced developers, but you can still apply for commercial property development finance if you have little or no experience. 

Commercial property development lenders like to see a good credit history and usually ask you for figures and documents relating to your build, project or purchase before approving a loan.  

The information you need to provide may include:

  • Detailed build costs
  • Purchase price or value of the site
  • Any current debt on the site
  • Development appraisal
  • Planning consent
  • Your CV

Lenders will also be looking to see if the project will generate sufficient profit to proceed. 

Finding the right lender and securing commercial property development finance can sometimes feel like a minefield, and that’s where we come in to help. Here at Provide, we match you with lenders that fit your requirements to save you the time and hassle of doing it yourself. 

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