Commercial Finance – considering blended solutions
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Considering blended solutions
Commercial finance is often complex. Indeed, it can often take multiple properties and multiple lenders in order to arrive at a satisfactory solution. Of course, the nature of some business restructuring can also add time pressures.
We saw a recent example where, due to pressure from the bank, the solution resulted in a £2 million high street remortgage on one property and a short term bridging solution involving a number of buy to let properties.
Having our foot in the commercial, bridging and second charge camp (to name a few) we see the benefit of second charges as a facilitating product to make the rest of the deal work. Sometimes a straightforward second charge can provide the solution to a deal that otherwise won’t fit.
As such seconds are an area commercial brokers would do well to take a longer look at. Indeed, even if you don’t have regulated mortgage permissions, you can still provide your clients a regulated second charge option on an introducer only basis.
Let’s take a look at some examples of the kind of blended commercial finance solutions you could offer your clients.
On the whole borrowers tend to have greater available equity in their residential home hence there is more opportunity to capital raise with regulated seconds. However at last count there were 14 lenders offering second charge products on buy to let properties and there are even lenders offering non status business loans on a second or third charge basis.
We often see clients raising capital via a second charge loan secured on a residential or buy to let property for deposits on a new buy to let, business expansion, to settle tax bills or to repay other business debt.
Often a commercial remortgage doesn’t make sense due to the costs involved or because of background factors such as adverse credit being an issue. Second charges can come to the rescue with rates from under 4% for prime cases through to plans accepting unlimited CCJ’s and defaults. There are even loans available to clear debt management plans and bankruptcies which can act as a credit repair vehicle prior to a larger restructure in the future.
Commonly we see second charges used to make up the shortfall when the primary restructure can’t raise the full amount required – without the extra cash raised by the second charge the overall deal would simply fail.
When bridging, a second charge bridge may work out far cheaper than taking out the existing first charge. Also if affordability isn’t an issue consider a second charge term loan instead – you will get far higher LTV’s, lower rates and some lenders don’t charge early repayment charges (ERC)’s on non regulated loans. A term loan also takes the pressure off your client to refinance. If their initial plan falls through they won’t find themselves facing soaring costs as would be the case with a bridging loan if kept for longer than originally planned.
If brokers don’t have permissions to advise and arrange regulated second charges, based on their non regulated fact find there is nothing to stop them talking through some scenarios with a second charge master broker prior to making an introduction.
There are of course FCA rules to abide by in these circumstances. Make sure the master broker has permissions to give advice on regulated second charges and procedures in place to deal with unauthorised introducers. You can check the status of the master broker by visiting the FCA register.
Transparency is key. Be sure to inform the borrower before the introduction of any commission your will receive as a result. The FCA has made it clear that unregulated introducers must not receive any money in connection with any transaction the client enters with the authorised party however this doesn’t including payment legitimately owed to you as a result of the introduction – i.e. your commission.
You’ll also need to make the client aware of any professional ties you may have to the master broker for example if you are part of the same parent company or group so as to avoid any conflict of interest.
And as an unregulated introducer you must not engage in “advertising or in the presentation, offering, preparatory work or conclusion of the regulated mortgage contract”.
For some being forced to step away from the regulated sale process may be difficult. But if you understand the FCA’s rules on the matter and get comfortable with them this could open up better outcomes for your business clients and an additional income stream for your business.
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Promise Money is a broker not a lender. Therefore we offer lenders representing the whole of market for mortgages, secured loans, bridging finance, commercial mortgages and development finance. These loans are secured on property and subject to the borrowers status. We may receive commissions that will vary depending on the lender, product, or other permissable factors. The nature of any commission will be confirmed to you before you proceed.
More than 50% of borrowers receive offers better than our representative examples
The %APR rate you will be offered is dependent on your personal circumstances.
Mortgages and Remortgages
Representative example
Borrow £270,000 over 300 months at 7.1% APRC representative at a fixed rate of 4.79% for 60 months at £1,539.39 per month and thereafter 240 instalments of £2050.55 at 8.49% or the lender’s current variable rate at the time. The total charge for credit is £317,807.66 which includes £2,500 advice / processing fees and £125 application fee. Total repayable £587,807.66
Secured / Second Charge Loans
Representative example
Borrow £62,000 over 180 months at 9.9% APRC representative at a fixed rate of 7.85% for 60 months at £622.09 per month and thereafter 120 instalments of £667.54 at 9.49% or the lender’s current variable rate at the time. The total charge for credit is £55,730.20 which includes £2,660 advice / processing fees and £125 application fee. Total repayable £117,730.20
Unsecured Loans
Representative example
Annual Interest Rate (fixed) is 49.7% p.a. with a Representative 49.7% APR, based on borrowing £5,000 and repaying this over 36 monthly repayments. Monthly repayment is £243.57 with a total amount repayable of £8,768.52 which includes the total interest repayable of £3,768.52.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME
REPAYING YOUR DEBTS OVER A LONGER PERIOD CAN REDUCE YOUR PAYMENTS BUT COULD INCREASE THE TOTAL INTEREST YOU PAY. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.
Promise Money is a trading style of Promise Solutions Ltd – Company number 04822774Promise Solutions, Fullard House, Neachells Lane, Wolverhampton, WV11 3QG
Authorised and regulated by the Financial Conduct Authority – Number 681423The Financial Conduct Authority does not regulate some forms of commercial / buy-to-let mortgages
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