Five ways to finance a commercial property

Investing in your first commercial property is an exciting journey but can also be complex. Choosing the right financing is critical to ensuring your investment is profitable and sustainable.

Here are five ways to finance your first commercial property.

1. Capital spend

One way to make your first commercial property purchase is to pay for it outright. If you have the funds, there are several advantages to buying a property in this way, including the following:

• Cost-effective – you won’t be taking on debt to make your purchase, so you won’t accrue any interest charges, which can significantly add to the cost.
• First-mover advantage – you’ll be able to buy the property immediately to take advantage of opportunities that other investors may miss.
• Purchasing power – as a cash buyer, you’ll have leverage to make a deal as you’ll be a more attractive buyer than someone who needs to secure finance.

2. Commercial mortgage

A commercial mortgage is one of the most common financing options for purchasing a property. Like a residential mortgage, it is a secured loan whereby you pay a deposit followed by monthly repayments with variable or fixed interest rates.

Interest rates on commercial mortgages tend to be higher than residential ones, and lenders consider a business’s trading history when deciding whether to lend.

3. Bridging loan

A commercial bridging loan is short-term finance that can be used to purchase a property on short notice or until long-term finance, such as a mortgage, can be secured.

Bridging loans are generally fast to obtain, enabling you to move quickly on a property purchase, such as at auction. As the loan term is typically no more than 18 months, and the interest rates are usually higher than commercial mortgages, you’ll need a plan to repay the loan.

4. Secured loan

You could use a secured loan to purchase a commercial property outright or to put down a deposit for a commercial mortgage.

You’ll need to use an existing asset for security – property, plant, and machinery- or book debts, for example. The amount you can borrow will largely depend on the asset’s value. Like a commercial mortgage, you’ll repay the loan in monthly instalments over three to 30 years.

5. Investment funding

Instead of taking on debt to purchase your first commercial property, you could seek external investment from angel investors or venture capitalists. This option has the advantage that there’s no debt to be repaid, but it requires you to share your business with your investors.

Consult a commercial finance broker for tailored assistance and expert guidance. At ASC, we can help you navigate the options, secure competitive terms, and ensure your investment aligns with your financial objectives. Contact us if you’d like to know more.