Start with the transaction, not the product
| Transaction characteristic | Finance category commonly encountered |
|---|---|
| Long-term premises purchase | Commercial mortgage |
| Commercial investment purchase | Commercial mortgage or specialist property finance |
| Short completion timetable with defined exit | Bridging finance |
| Property requiring substantial works before long-term use/refinance | Bridging or development finance depending on scope |
| Ground-up or significant development | Development finance |
These are broad categories, not recommendations.
Commercial mortgage
For a conventional longer-term commercial property purchase, a commercial mortgage is often one of the first categories considered.
A lender will normally need to understand:
- the property
- price and proposed borrowing
- intended use
- deposit/equity
- applicant or business financial position
- rental position where applicable
- security
- valuation
Bridging finance
Bridging finance is shorter term and usually depends on a clear exit.
It can be encountered where the purchase has to complete within a particular timeframe or where the property is not yet in the condition required for the intended longer-term finance.
The exit might involve refinance, sale or another defined source of repayment, subject to lender acceptance.
Development finance
Where the project involves construction or material development works, development finance may be the more relevant category to investigate.
The lender typically considers the project as a whole, including acquisition, costs, works, experience, projected end position and exit.
Four questions that change the funding route
1. What are you buying?
Office, industrial, retail, hospitality, mixed-use and specialist properties can be treated differently by lenders.
2. What will happen to the property?
Owner occupation, letting, refurbishment, redevelopment and resale create different transaction profiles.
3. What condition is it in?
A property ready for occupation is different from one requiring structural work or conversion.
4. What is the intended timescale?
Long-term ownership and short-term acquisition/refinance requirements generally lead to different facility structures.
Example transaction pathways
Owner-occupier purchase
- 1Purchase
- 2commercial mortgage underwriting
- 3valuation/legal work
- 4completion
- 5longer-term repayment
Time-sensitive acquisition
- 1Purchase
- 2bridging facility
- 3works/other event if required
- 4refinance or sale
- 5bridge repaid
Development
- 1Site acquisition
- 2development funding
- 3staged works
- 4completion
- 5sale/refinance exit
These diagrams explain common structures only. Real cases can follow different routes.
Costs and information to plan for
Without quoting transaction-specific amounts, buyers should expect commercial property finance to involve costs and professional work beyond the headline loan.
Potential items include:
- valuation
- legal work
- lender or facility fees
- broker/introduction fees where applicable and properly disclosed
- surveys or specialist reports
- taxes and transaction costs
- development monitoring where relevant
Applicants should obtain the relevant professional and tax advice for their circumstances.
Why lender criteria differ
Commercial property is not one uniform asset class. A standard office building and a specialist trading property can have very different resale markets and valuation considerations.
Lenders therefore apply their own policies around property type, location, use, tenant profile, borrower experience and leverage.
Key takeaways
- Commercial mortgages, bridging and development finance can all appear in commercial property transactions.
- The correct starting point is the property, purpose, condition, timescale and exit.
- A short-term purchase and a long-term owner-occupier purchase are fundamentally different funding problems.
- Lender appetite and criteria vary considerably.
For a structured way to capture the transaction details before seeking introductions, use the funding readiness assessment.