Specialist Commercial Finance - Frequently Asked Questions

1. What is the difference between commercial and residential finance?

Whereas most residential mortgage lenders have rates, terms and LTV's that are accessible on Trigold or Mortgage Brain, there is no such sourcing tool for commercial lending as it is very much about the quality of the overall proposition. High street lenders such as Nat West, Lloyds TSB, Barclays, etc., usually link margins to their Base Rate. The amount of the margin is determined by the strength of the business, the type of business, quality of security, experience of proprietors/directors and credit history of both the business and proprietors/directors.

You should be very wary of brokers that quote a rate x% over base rate before they have full details of the applicant's circumstances.
For non-High Street lenders, we can usually quote rates and repayments within an hour of speaking to the client and obtaining the information required.

Also there are 6 rules that determine whether a mortgage is classed as commercial or a residential Regulated Mortgage Contract (RMC). These are: -

a) Is the Applicant a single applicant, sole trader, partnership or a trust?
b) Is the customer a resident of the UK or the European Union?
c) Will occupants of the primary security be the applicant/a relative/an individual beneficiary of a Trust (related persons include Spouse, Common law marriage (including same sex, Parent, Brother, Sister, Child, Grandparent, Grandchild)?
d) Does the residential area of the property (including land) exceed 40% of the total property area (this includes any external land plus the internal floor that is used for residential purposes)?
e) Is the annual turnover of the applicant's business less than £1 million per annum?
f) Will the finance be secured by a first charge over the property offered as primary security?

If the answer to all six of these questions is YES, the enquiry is classed as a Regulated Mortgage Contract. Some of our lenders are not authorised by the FSA to offer Regulated Mortgage Contracts. If you are not authorised by the FSA there is only very basic information that you are allowed to obtain from the borrower.

2. What percentage of their property value can my client borrow?

We can still obtain 100% LTV products for professional applicants (solicitors, accountants, etc.,). LTV's for other types of borrower will be determined by the overall proposition. This is where using an experienced commercial broker such as SCF is of huge benefit, as we not only have a large number of lenders to choose from but also have excellent and long standing relationships with the staff at these lenders.

3. What fees are payable?

A valuation fee will always be required and to save time we always ask the borrower to pay the surveyor direct - we do not take a slice of the fee. Legal fees will also usually be payable and a few lenders insist on the applicant paying their legal fees from the advance. We have special arrangements with solicitors that have experience within commercial mortgages.

Some lenders ask for an up front Commitment Fee - different lenders request various amounts and usually these are refundable subject to certain guidelines.

Your client may be asked to pay an initial Commitment Fee of £200 to SCF, usually if we are approaching High Street lenders with a good quality application. The is refundable if we are unable to assist the applicant or when the advance completes.

Some lenders charge a Completion Fee - again this varies from lender to lender. At SCF we charge a Completion Fee of between 1% to 2% with a minimum of £1,000.

4. How much can my client borrow?

Any amount from £26,000 upwards, subject to security and LTV.

5. My client has had credit problems. Can you help?

Yes, absolutely. We have many lenders that will accept County Court Judgements, arrears history, Individual Voluntary Arrangements, Company Voluntary Arrangements. Usually it will mean a lower LTV and higher interest rate but on occasions a poor credit history may be ignored completely by a lender.

6. Are there any early settlement penalties?

We have some lenders that do not charge any penalties whatsoever, some that will charge 6 months interest upon redemption and may others in between these two figures. Your client will always be made totally aware of what to expect so there are no nasty surprises.

7. How long does the process take?

Sometimes days, sometimes months. The main determining factors are how long it takes the applicant to provide information we request, how long it takes the lender to sanction the deal, how long it takes the surveyor to report back to us, and the solicitors used (solicitors inexperienced in commercial property transactions should be avoided at all costs).

8. What information will my client need to provide?

For an application that would be accepted by a High Street Bank, six months (business and personal) Bank Statements and 3 years accounts are always required. Asset & Liability Statements will have to be completed, signature and address identification and in some cases a full CV may be requested. On rare occasions a bank may ask to meet the applicant face to face.

9. My client cannot prove their income. Can you help?

Many of our lenders will accept self certification, as long as the income stated makes sense

10. How much will I earn?

We pay you 50% of the commission we receive from the lender. Usually this is paid within 48 hours of completion but several lenders pay us on a monthly basis and we therefore reserve to right to pay you once we receive cleared funds, especially on larger advances.

You can also charge your own broker fee - this can usually be deducted from the advance or you can make your own arrangements with your client.