Long Term and Short Term Business Property Loans

Commercial property is usually both a major investment for any business to make without having raised some form of debt finance, as well as being a large store of value that a business can use to raise cash from when needed. This article covers the different types of business property loans that are available such as commercial mortgages and bridging loans and how to go about raising a business property loan.

Commercial mortgages

A wide variety of institutions including banks, building societies, insurance companies and asset based lenders provide mortgages against commercial property. These can be either ones which are owner occupied or investment properties that are rented out.

Despite the credit crunch these is still a reasonable availability of this type of funding so long as there are no major problems with either the property, such as environmental issues, or the company which means it has to have been both profitable over the prior three years in total and had no catastrophic trading losses in any one year.

Advances from banks are usually around 60% to 65% of Open Market Value (OMV) while through other funders you may be able to raise up to say 70%, depending on market conditions and the strength of your proposal.

If an applicant or a related person (which is defined as a spouse, common law partner, parent, sibling, child, grandchild or grandparent) lives or intends to live at part of a property being offered as security, and the living accommodation comprises over 40% of the property, the loan will be regulated in the same way as domestic mortgages. In this case you will need to obtain advice from an Independent Financial Advisor (IFA).

Funders will need details of the property involved and its current value as well as details of the rental income or the business’s trading performance to assess your ability to service the loan.

Bridging

As an alternative to a long term commercial mortgage, there are a limited number of serious players in the commercial property bridging market. These offer short term loans, typically on a six or twelve month term, of up to 70% of OMV (or 60% on a second charge basis).

Bridging is always however expensive money and you should expect interest rates of between 1% and 1.75% per month. Against this, bridging loans can be arranged quickly and being interest only (which can also sometimes be ‘rolled up’ into a bullet payment due on redemption), can even have short term cash flow advantages over loans at cheaper interest rates.

So why take the risk? Well bridging loans can be obtained quickly and can therefore be used to raise cash in an emergency or to take advantage of an opportunity. They are also usually based on valuation rather than purchase price so can provide higher funding in situations where a distressed asset is being bought. They are also largely based simply on the underlying security value of the asset and so can be used in circumstances where a business does not have the accounts required with which to obtain a normal commercial mortgage at the outset.

Given how expensive this type of loan can be you should only ever take a bridging loan out if you have a clear idea as to how you are going to be able to repay it and you should take advice from a broker who knows the market.

Sale and leaseback

With a sale and leaseback the property is sold to an investor which allows you to realise its full value. You then lease the property back typically over 15 or 25 years on normal institutional terms with, for example, rent reviews every five years. The investor will then be looking for the rent charged to provide a reasonable yield against the price paid for it.

As an investment, this type of transaction is usually only relevant to larger properties of over say £500,000 in value, and in addition to the bricks and mortar value of the building, investors will be concerned about the strength of your business as a ‘covenant’ which means your likely ability to pay the rent into the future.

Sale and leasebacks are often very useful in MBO/MBIs and other business acquisitions, as the ability to realise 100% of the open market value eliminates the need to tie up some of the available equity in bricks and mortar, as would be needed with a commercial mortgage of say 70%.

In some cases, the actual sales price achieved can be in excess of the surveyor’s opinion as to OMV and/or the value attributed to the property in the business sale and this can result in an injection of working capital into a Newco at the outset.

Pension purchase

For some businesses it may be possible and appropriate for the company or directors’ pensions scheme to be the investor in a sale and leaseback arrangement, raising a mortgage and purchasing the premises from the company as described above. This injects funds into the company from the realisation of the property, while the property is under the control of a known party and in some cases the pension scheme may be able to borrow more cheaply than the company can.

Pension schemes must have the appropriate structure and borrowing powers to undertake this sort of transaction so you will need to take specialist advice and assistance from an Independent Financial Advisor (IFA) with experience in this area.

Gardening Styles Revisited

Each gardener has his or her own set of gardening guidelines that correspond to certain predetermined gardening styles. If you know your gardening style and if you can apply that style to creating an organic garden, then you have pretty much captured an edge over other gardening enthusiasts. But, if you do not have a gardening style that you can apply to organic vegetable growing, then you could be at a strong disadvantage. What are the different styles of gardening that actually apply to successful organic vegetable harvesting? Here are some of the types that you could consider:

Residential Gardening

This is the most common of all gardening techniques. It is often referred to as “backyard gardening”. If you are just a novice and not seasonally experienced in vegetable gardening, then residential gardening is your best approach. The primary purpose of the residential garden is to feed a family. A steady supply of home grown vegetables can not only feed your family now, if you understand canning and preserving, your garden can nourish your family long after the production period of your garden has ended.

The second appeal of residential gardening lies in its aesthetic appeal. Your garden can add color and depth to your landscape. It is quite transforming to see what was once only grass, a wooden deck, or a concrete balcony develop into an eye pleasing sculpture.

Residential gardening does not require a great deal of space. A window sill, deck, balcony or other small area that has sufficient light can easily produce a small crop. These small confined areas are easy to monitor and at the same time, easy to maintain. Protecting your garden from pests is much easier in a smaller area. The great thing about residential gardening is the ease with which it transforms the gardening wannabe into the gardening professional. It takes the rookie, having no knowledge of planting, growing, and harvesting, to a level of understanding where other gardening styles become the dream and the possibility.

Specialized Gardening

Specialized gardening usually involves non-residential areas. Common examples of specialized gardening include amusement parks, botanical gardens, zoos, commercial landscaping along highway right of ways, and many more. Making the landscape more attractive seems to be the most common underlying theme of the specialized garden. These landscaping endeavors are rarely the responsibility of a single person. Often times a staff of botanists and gardeners work together to maintain the garden’s aesthetic attractiveness. These gardens are often created to support or deliver revenue to their owners or the organizations supporting them.

Specialized gardens rarely sport vegetables like corn, tomatoes, potatoes, peas, or beans. They, in agreement with their type, focus more on the special or more rare type of flora. Unique flowers, shrubs, even trees are often found in these areas. But, when a specialized garden does focus on vegetable planting, wide row techniques, sewing seeds in a wide band rather than in a single row, are most often applied.

Impact Gardening

By definition, impact gardening focuses on getting the most out of a small space. It involves using a relatively small gardening area and finding ways to maximize its gardening potential. In order to accomplish this objective, plants are strategically organized and systematically planted in a “crowded” format. This type of gardening requires a basic knowledge of plant types; annuals, perennials, shrubs, trees, and even ground cover. Understanding the types of plants most suited to the environment and the climate is paramount to successful impact gardening.

Impact gardening requires planning. A haphazard approach will not work. A layout of which plants will be placed where is paramount to successful impact growing. The best approach is to actually draw out a schematic of the garden labeling specific areas and then filling those areas with the appropriate plants. These designs or surveys should be as detailed as possible to include plant specifics and cost analysis.

There are four basic steps to successful impact gardening.

Step one, survey a space for the garden and mark off the specific site. It is best to have the long side of the plot aligned with the sun, from east to west. This helps keep the plants from burning in the summer heat, and ruining your crops.
Step two, design the garden. It should be attractive yet maintain its functionality.
Step three, make long thin beds, eight feet longer than they are wide. This makes it easy to weed and plant. Build the bed frames out of long 2×8′s. If you make several, you can lay them end to end, parallel to the sun.
Step four, use soaker hoses to water. Place them up and down the rows, about one foot from the edges of the bed.

Indoor Gardening

Growing plants indoors is not only a science, it is an art. This type of gardening can be as small as a few potted plants kept on the coffee table or near the front door; or as large as a greenhouse with thousands of plant varieties housed in a climate controlled environment. These greenhouses or conservatories are designed and built with controlled systems for heating and air conditioning, whatever the plants require. Unfortunately this hot house type of gardening is more suitable to the commercial grower because of the expense factor involved.

For the home owner, the greatest benefit of indoor gardening is the simple fact that plants can be grown year round, completely independent of extreme climatic conditions like heat, cold, wind, or rain. Light is the most common limiting factor for indoor gardening. Most plants do not do well indoors, so it is important to match the light needs of a particular plant with the amount of light you can offer it. There are three general light categories–high, medium and low light. An easy way to measure how much light is in a particular area is to use a light meter, which is typically available at local nurseries, or simply hold your hand between the source of light and the spot where the plant is to be set. The amount of shadow gives a rough indication of available light. If there is no shadow or if a shadow is difficult to see, then that is an indication of low light.

Water Gardening

If you like low supervision gardening and love fish and aquatic plants, then water gardening is your style. Perhaps the most important consideration in water gardening is location selection. Most aquatic plants and fish need plenty of sun, so a place that gets 6-8 hours of direct sunlight is your best bet. Choose a site away from tall shrubs and trees. This site will then provide the best lighting and hopefully prevent the accumulation of leaf debris on the pond surface.

Planning is once again very important. Make sure you apply both common sense and some basic gardening principles to your site plan before you begin construction. Consider the overall size of your property, the size of your site selection, and your ability to maintain your garden before you scoop the first shovel of dirt. It goes without saying, small ponds are best for small properties. A container on a deck may be all that your need in accordance with the space you have available. Features like waterfalls, rock work, lighting and fountains are budget dependent. They may add style, but they could be overly costly.

Aquatic plants should cover no more than 50 – 60 percent of the water surface. Some are free floating while others are marginals or partially submerged. Selection depends on pond size and your personal preference. Water lilies are very popular and can add drama and fragrance even in small gardens. Some plants oxygenate the water and they help keep the water clear and the pool healthy. Fish can be a beneficial addition, because of their scavenging activities. They naturally clean up debris that would otherwise accumulate in the garden. They also can help control mosquito larva, and other insect development.

Community Gardening

Community gardening is becoming quite popular especially in highly populated urban areas. It involves concentrated efforts from different members of the community to help plant, maintain, and then harvest a garden. It is a huge undertaking, but the members of the community are given autonomy to style their areas in whichever way they choose. Locally, the Master Gardner program, through local Agricultural Extension Services, can provide just the right atmosphere for a community to plant a garden, maintain its integrity, and harvest its produce.

Neighborhoods pull together and transform vacant lots into green space. Building tenants gather on rooftops to plant and grow vegetables. Everyone shares in the responsibility and the harvest. This is community gardening in its purest form. These community gardens are a great way to get both children and adults involved in beautifying the neighborhood while at the same time working with nature.

No matter which style suits your needs best, it can be effectively applied to organic gardening. Each gardening style requires some level of planning and site preparation. Once planting is complete, the actual work of gardening begins. Caring for the plants in your garden is very similar to caring for your pets. They need regular food and water. Their space needs to be cleaned or weeded regularly. And, the more attention you give them, the more they respond and produce.

Starting a Real Estate Business

The real estate industry is very sensitive to economic changes like interest rates and the cost of materials in building houses. Interest rates in particular can easily swing the number of sales that are completed during any quarter of the year. Rising interest rates will slow down the sales and falling rates will aid the sales of real estate. This is an important fact in the real estate business as this can absolutely cause rapid changes in income from the sales that can be made.

With this in mind, the time to buy an agency that comes up for sale may be when the real estate business is in the doldrums. A hot real estate market will make an existing firm worth more, as their income will be higher during this period of time. Of course if you follow this course of action, you will have to wait out the slow down in the markets. Another factor in the purchase or start-up a real estate company is the state licensing requirements.

Most states have serious requirements for real estate agents and brokers. Brokers have a much stiffer requirement in most states than an agent. The requirements include passing exams and a fixed number of educational hours for both agents and brokers. There is also a requirement for continuing education. These state mandated steps to a career in the real estate business would have to be met before an agency could be purchased or started. Since this industry is regulated and has strong legal steps to comply with, this licensing plus experience would be an initial step to being an owner in this field. This is not a business that can be stepped into by just paying out some money.

An agent can have the goal of owning their own firm, but it will take planning and meeting the state rules to make this happen. Once a potential owner has these steps out of the way, finding an existing business to buy will be in order. A quick check of real estate business listings reveals that they are usually found in larger cities and the asking price is significant. There are also resales of franchise companies. Just typing into a search engine, “Real estate businesses for sale”, came up with this quick check. A buyer could also check with business brokers and real estate brokers in their city. Another source worth checking out would be a franchise connection. An in place real estate business is advantages as the name is already known and will get clients due to this. When you start a company from the ground up you do not have this advantage. An existing business with several locations will come with a higher price tag than what you could start your own business for.

Another way to gain ownership would be buying into an existing business. This could work if you have a solid relationship with the current owner. The problem is you will not have the final say in most decisions unless you are buying controlling interest.

Specialty real estate firms

Most people think about a firm that helps with the buying and selling a home. There are several other areas of specialization. A real estate firm could become expert in buying and selling commercial property, farmland and farms, farm product processing plants, rental properties and shopping centers. Actually a broker could cut out a niche market from many that are available in the real estate business. If you have an area of expertise, this could become something that could be marketable and cut out a lot of competition in certain situations. Some real estate firms have unique departments that handle certain types of real estate marketing. The decision you must make is what kind of a firm are you going to own. You may have to start your own in order to make it happen.

You could also get into real estate management and the buying and selling of these rental properties, which is a very unique part of the industry. Shopping center related firms could be in from the start of a project. They can help with the formation of the firm to build and own the property and then handle the rentals and day-to-day management of the center.

The point of all of this is there are areas of real estate specialization that lend themselves to a business that just works in this real estate category.

Finding the money to make your dream happen

You may not have the total purchase price for an existing business. The question is how do you come up with the balance to make the deal. Finding a source to lend you the money is one way to come up with the needed funds. There are businesses that offer loans to new owners of businesses. These can be found on the Internet by just doing a search. Family and friends could be another source of money. One way to get the needed money is to take in a partner for the business. If you have a friend in the business maybe they would be interested in owning part of the existing company. All of these possible money suppliers will have different requirements for paying the money back.

Make sure you can see your way clearly on how you will accomplish the pay back. This business can be adversely affected by interest rates so you would need a second way to make the payments. A person thinking about ownership in this field must remember that it can be feast or famine as far as sales and commissions go. This is not like being in the restaurant business or owning a printing company. Successful brokers can make considerable money in a good market. They can also have periods that are very tight as to sales. The brokers that succeed have a policy of putting away some of their earnings during good times to cover the less profitable times. Doing this just shows the broker has a realistic view of the business.

Conclusions

This business can be extremely profitable during low interest rate economies. The legal and state requirements make the ownership of a brokerage firm more difficult to own than is the case with other businesses. Buying and selling a real estate business is somewhat more difficult due to the restrictions that are placed on the owner of a real estate firm. You must have the appropriate licenses in place before you can begin operation. This is true whether you buy a company or start one up from scratch. Finding a firm you can afford will take some time and research on your part. Hiring a professional business broker may speed up the search.

Deciding early on if you want to be a specialist will set other decisions in place. Niche areas that you are an expert in will help cut the competition somewhat. A general real estate business will have the potential for more clients, but will need and ongoing advertising campaign to gain listings and clients looking to buy. The start-up is cheaper to open, but will have little cash flow like an existing firm. Money flow is the one huge advantage buying an existing business offers to the new owner.