Sources for Commercial Funding - Where to Find the Money

There are three main sources of finance for business purchases or development: Clearing Banks (e.g., Barclays, NatWest, HSBC), Finance Houses/Centralized Banks, and Building Societies.

Freehold Loans:
Banks and Finance Houses typically offer repayment terms of 10, 15, or 20 years, while Building Societies may allow terms up to 25 years.

Leasehold Loans:
Generally limited to Banks and restricted to a maximum of 10 years or two-thirds of the lease's unexpired term.

Interest rates also vary:

Banks charge from 1.5% above their base rate.
Finance Houses charge from 2.5% above their base rate.
Building Societies may require an additional 1-2% above their standard mortgage rate.
Attractive rates are more likely when you avoid seeking the maximum loan amount or repayment period.

Percentage Advances
The percentage of the loan offered differs by lender:

Freehold Loans:
Up to 100% of the bricks-and-mortar value, subject to repayment capacity.
Some lenders offer up to 70% of the purchase price (including goodwill, fixtures, and fittings but excluding stock) or up to 75-80%, provided it does not exceed 100% of the bricks-and-mortar value.

Leasehold Loans:
Typically capped at 60% of the purchase price (excluding stock).
For premises without living accommodation (‘lock-up’ businesses), the maximum is usually 50%.

100% loans are possible if additional ‘outside security’ is provided (explained below).

Outside Security and Income

Additional security (e.g., property) can extend borrowing limits, but it must be considered sufficient. Loan repayments must come from business profits, with outside income treated as a bonus rather than a primary source.

Outside Security and Income

Structured Loans and Overdrafts

It’s important to carefully balance your financing needs:
Consider structuring part of the loan with regular monthly repayments, while using an overdraft for the remaining balance.
Overdrafts should be repayable within 3 to 6 months. Persistent overdrafts beyond this period should ideally have been included in structured lending.

Careful planning and selection of funding arrangements are critical to avoid financial strain.

Learn more, contact Nationwide Business Finance to find out the best options available for your needs.

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