Commercial lending - Limited Company

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    Commercial lending - Limited Company

    Dear All,

    New to the property game!

    I have recently acquired a property through my newly formed limited company.

    I am interested in gearing up against the property and acquiring several more to maximize returns.

    1/ Any advice on the best structure to do this whilst limiting risk? I.e. Should I create a holding company, and have SPVs underneath for each property
    2/ What is a decent rate of finance commercially, I could get 1-2% as a private borrower, but as a company it looks more like anywhere 3.5-5%, which seems steep considering central bank rates, any advice on commercial lenders? And what rates to expect?
    3/ Is there a way of negotiating / dealing with lenders to optimise terms?

    #2
    Hi Brucedickinson
    When you talk about commercial lending , are we talking about loans secured against Offices, shops, Warehouses etc or residential investment property?

    Creating a single SPV to hold all properties is the most common way of arranging such borrowings as to create individual SPV's can itself become expensive in accountancy fees but the choice is down to you. I would say that such discussions should in any event be conducted with your accountant in order that you understand the implications of such arrangements.

    A number of "Corporate Borrowers" tend to approach their own bank or another High Street bank to arrange lines of finance to facilitate speedy completion of purchases , others however will seek , particularly for Buy to Let mortgages , whatever is the most commercial and competitive rate going having no intention of being committed to one single lender. If you go down the latter route and depending on the Loan to Value the rates as observed by you are generally the norm but the competitive facilities tend to be in the lower to mid 4% range but as I always post much depends on the lenders reversionary rate which can make a big difference. In such circumstances there is absolutely no room for negotiation as the funding formulae adopted by lenders is quite similar irrespective of whether one chooses the lowest rate with a high completion fee or a higher rate but lower or fixed completion fee. Some forum members may and I agree suggest you discuss whether your own bank can be helpful and on what terms. I find RBS/Nat West to have an appetite for such arrangements but it is really down to you.

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      #3
      Bruce do you own an aviation company by any chance?

      Comment


        #4
        Originally posted by hech123 View Post
        Bruce do you own an aviation company by any chance?
        Interesting question, why do you ask?

        Comment


          #5
          I wondered about the question so I googled the name and there facing me was someone who had pips on his shoulders who apparently owned an airline.

          Comment


            #6
            An investor I work with met someone who was looking for investors in an aviation company. Not sure it was an airline. In reply to your questions see below -

            1. Your risks are massive, you are a new investor probably with little or no experience in this field in areas such as fire regulation, Carbon monoxide poisoning, Risk assessment, Housing health and safety rating system, electrical installations etc... Your main risk in injury or death to a tenant whereby you will go to prison if you have failed in your statutory duty to protect your tenants or you face severe penalties such as insurance companies not paying out again for similar reasons. A company can not protect you against this, neither can a moron letting agent who probably doesn't know half this stuff either as the burden comes back to the landlord at the end of the day.

            2. Banks will look at your risk profile which looks pretty risky to me if your very new to this and have no experience managing residential property, they will also look at how covered there money is. If something severe happens and it is the Directors fault can they take him to court on a personal basis? What is the security in the property/equity. A good rate can be 2% over base this would be for someone who totally knows what they are doing and is borrowing £300k on a million pound asset which has great rent cover. A rate for someone else would be perhaps in the 4-5% over base bracket possibly even more.

            3. Negotiating is pretty pointless in todays market as there are more lenders than there is capital so banks can take there pick and are putting the good clients first. you may save something by shopping around but trying to knock your bank down may in fact just annoy them, unless your a good client in other ways such as owning a share in an aviation company??

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              #7
              The company always pays a higher interest rate as lending to a company is riskier compared to lending to private persons. When a company becomes insolvent or bankrupt , the liquidator takes control of the assets and converts to cash to pay off the creditors.

              Comment

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