What are the Different Types of Commercial Property Finance?

What are the Different Types of Commercial Property Finance?

When it comes to financing a property purchase, there is a range of options available. In this blog post, we will take a look at the different types of commercial property finance available and what each one entails. By understanding the different options, you can make an informed decision about which is the best finance option for you and your property purchase. So, whether you are a first-time buyer or a seasoned investor, read on to find out more.

What is commercial property finance?

Commercial property finance is a loan that is specifically used to purchase or refinance a commercial property. This type of financing is typically done through a bank or other financial institution. Commercial property finance can be used for a variety of purposes, such as buying an office building, retail space, or industrial property, however, the terms of your loan can vary depending on which of these you are interested in.

Commercial property finance generally has higher interest rates than residential mortgages because the loans are considered to be riskier. The loans also tend to have shorter terms than residential mortgages, so the monthly payments can be higher. Borrowers typically need to have strong credit scores and cash reserves in order to qualify for commercial property finance, some lenders may even require borrowers to have experience in managing commercial properties before they will approve a loan. Commercial property finance is typically provided by banks, however, there are also a number of specialist lenders operating in this market such as Millbrook Business Finance Specialists.

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Exploring the main forms of property finance

There are a number of different types of commercial property finance, each with its own benefits and drawbacks. Here is a brief overview of some of the most common options along with their individual strengths:

Commercial property loan

A commercial property loan is a type of loan that is used to finance the purchase of a commercial property. Commercial properties can include office buildings, retail stores, restaurants and warehouses.

There are plenty of advantages to taking out a commercial property loan, whether you’re looking to finance a new venture or expand your existing business. Here are just a few:

  • You can use a commercial property loan for almost any purpose - Unlike some types of loans, commercial property loans can be used for a wide range of purposes, including purchasing or refinancing commercial real estate, expanding your business, or consolidating debt. This flexibility gives you the ability to tailor your loan to suit your specific needs.
  • Commercial property loans offer competitive rates - Interest rates on commercial property loans are typically lower than those on personal loans or credit cards. 
  • You can spread the cost over a longer period of time - A commercial mortgage is typically paid back over a period of 25 years, which gives you plenty of time to gradually pay off the debt and minimise the impact on your cash flow. This is in contrast to other types of finance such as personal loans, which are usually repaid much quicker – often within just a few years.

Development finance

A Development Finance loan is a loan specifically designed for businesses or individuals who want to develop new or existing businesses in underserved markets around the world. Development Finance loans can be used for a variety of purposes; including, financing the purchase of land, property, or equipment, building new facilities or expanding existing ones, buying inventory or raw materials, training employees and/or developing management skills, paying for marketing and advertising campaigns and covering other business expenses related to growth and expansion. 

The loans are usually backed by the government of the country where the development is taking place and are offered to companies or entrepreneurs who can demonstrate a clear need for capital and a well-thought-out plan for using it. Development Finance loans offer a number of advantages over other types of loans. Some of the key benefits include:

  • Less stringent qualification requirements - Development Finance lenders are often more flexible than traditional commercial banks when it comes to terms and conditions. This can be particularly important for businesses in developing countries that may not have strong credit ratings or established track records.
  • Fast approvals - Many Development Finance lenders can approve loans very quickly, sometimes within 48 hours or less. This can be a major advantage for businesses that need capital quickly in order to take advantage of an opportunity or get their project off the ground quickly.

Bridging loan

A bridging loan is a type of short-term finance used to "bridge" the gap between buying a new property and selling your old one. Bridging loans can be used for a variety of purposes, including renovations, extensions, or even moving house.

Bridging loans are typically interest-only loans, which means you only need to repay the interest on the loan each month. This makes them more affordable than full repayment loans in the short term. However, because you're not repaying any of the actual loan amount - the amount you owe (and the interest you'll have to pay) will increase over time. Bridging loans are typically arranged by specialist lenders and are not always easy to get, however, if you qualify, they have many unique advantages:

  • Financial assistance during a transition - They provide you with the help to buy a new property before selling your current one. This can come in handy if you're looking to upgrade to a bigger home or move to a more desirable location.
  • Fast approval - They can be approved quite quickly - often within just 48 hours. So if you need access to funds in a hurry, a bridging loan could be the perfect option.
  • Low interest - Interest rates on bridging loans are typically lower than those on other types of finance such as credit cards and personal loans because they are typically for a much shorter period of time.

Introducing Millbrook Commercial Property Finance

If you’re ready to take the next step, Millbrook offers bespoke finance solutions for UK businesses ranging from £5,000 up to £10M, including commercial property loans, development finance, and bridging loans. We're committed to helping business owners grow and succeed, and our team of experts is here to help you get the financing you need. Give us a call today to learn more about our products and services and start your property finance journey today.