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What is the Difference Between Corporate Finance and Commercial Finance?
In the intricate world of finance, terms like “corporate finance” and “commercial finance” often intermingle, leading to confusion about their distinct roles and purposes. In this blog post, we aim to demystify these terms, providing clarity on the differences between corporate finance and commercial finance and how they each contribute to the financial landscape.
Understanding corporate finance
Scope and focus:
- Corporate finance primarily deals with the financial decisions made within a corporation. It involves managing the capital structure, making investment decisions, and determining the company’s overall financial strategy.
- The focus is on maximising shareholder value and ensuring the company’s long-term financial health.
Capital structure:
- Corporate finance encompasses decisions related to the company’s capital structure, including how to raise capital and the mix of debt and equity. This involves considerations such as issuing stocks, bonds, and managing debt levels.
Investment decisions:
- Corporate finance professionals evaluate potential investments, weighing factors such as risk, return, and the impact on shareholder value. This includes decisions about mergers and acquisitions, capital expenditures, and other strategic investments.
Dividend policies:
- Determining the company’s dividend policies falls under corporate finance. This involves deciding how much of the company’s profits will be distributed to shareholders in the form of dividends.
Understanding commercial finance
Client focus:
- Commercial finance, on the other hand, is broader in scope and focuses on providing financial solutions to businesses. It caters to the financial needs of a wide range of businesses, including small enterprises and large corporations.
Diverse financial products:
- Commercial finance encompasses a diverse set of financial products and services aimed at supporting businesses. This includes business loans, lines of credit, invoice financing, trade finance, and other tailored solutions.
Operational funding:
- The primary goal of commercial finance is to provide businesses with the necessary funding to support day-to-day operations, expansion, and strategic initiatives.
Risk management:
- Commercial finance involves assessing the financial health and risk profile of businesses to structure financing solutions that meet their unique needs. It often includes risk-mitigating strategies tailored to the business environment.
Distinguishing between the two
Scope of operations:
- Corporate finance is more internally focused, dealing with the financial decisions and strategies within a specific corporation. Commercial finance, on the other hand, extends its services to a broader range of businesses, addressing their financial needs.
Decision-making authority:
- Corporate finance decisions are typically made by the company’s executives and financial management team. In contrast, commercial finance decisions involve collaboration between businesses and financial institutions, or lenders.
Scale of transactions:
- Corporate finance often involves large-scale financial transactions, such as mergers and acquisitions, while commercial finance caters to businesses of varying sizes, including small and medium-sized enterprises.
In summary, the key distinction between corporate finance and commercial finance lies in their scope, focus, and target clientele. Corporate finance revolves around the financial decisions within a specific corporation, optimising its capital structure and investments. Commercial finance, on the other hand, provides a broader array of financial solutions to businesses of all sizes, supporting their operational and strategic needs. Understanding these differences is crucial for businesses seeking the right financial solutions to navigate the complex world of finance.
How Does Development Finance Work?
Embarking on a property development project is an exciting journey, but it often requires substantial financial backing to turn visions into reality. Development finance stands as a crucial pillar in this process, offering a specialised funding solution tailored to the unique needs of development projects. In this blog post, we’ll dissect the question, “How does development finance work?” to provide a comprehensive understanding of the mechanisms behind this essential aspect of property development.
Understanding the basics:
Project assessment
Development finance begins with a thorough assessment of the proposed project. Lenders evaluate factors such as the project’s feasibility, market demand, location, and the borrower’s experience in property development.
Loan Structuring
Once a project is deemed viable, the lender structures the loan to meet the specific needs of the development. This includes determining the loan amount, interest rates, repayment terms, and any conditions tied to the release of funds.
Security and collateral
Development finance is typically secured against the property being developed. The value of the property and the potential profitability of the completed project are crucial considerations for the lender.
Structured drawdowns
Unlike traditional loans, development finance often involves structured drawdowns. Funds are released in stages, corresponding to different phases of the project. This ensures that the capital is utilised efficiently and tied to project milestones.
Professional oversight
Lenders often engage professionals, such as surveyors and project managers, to oversee the development. Regular inspections and progress reports help ensure that the project is on track and aligns with the proposed timeline.
Interest-only payments
During the construction phase, developers often make interest-only payments. This alleviates the financial burden during the project’s early stages, when the property is not generating income.
Exit strategy
Development finance is structured with a clear exit strategy in mind. This could involve selling the completed project, refinancing with a traditional mortgage, or another method agreed upon by the borrower and lender.
Risk mitigation
Development projects inherently carry risks, from construction delays to market fluctuations. Development finance is designed to mitigate these risks by providing flexibility and accommodating unforeseen challenges during the project’s lifecycle.
In conclusion
In essence, development finance is a strategic partnership between the borrower and the lender, with the common goal of bringing a development project to fruition. The intricacies of this financial tool ensure that funds are allocated efficiently, risks are managed, and the development progresses smoothly from inception to completion.
As you navigate the realm of property development, understanding how development finance works becomes paramount. Collaborating with reputable lenders, seeking professional advice, and having a clear vision of your project are key steps towards leveraging development finance to turn your real estate aspirations into tangible, thriving developments.
Which banks offer a bridging loan?
Bridging Loans: navigating the maze of lenders in the UK
In the dynamic world of property finance, bridging loans have emerged as a crucial tool for individuals and businesses seeking short-term funding solutions. These specialised loans provide temporary financial support, typically bridging the gap between the sale of one property and the purchase of another or covering unforeseen expenses. While bridging loans offer a valuable lifeline, navigating the maze of lenders in the UK can be a daunting task. This blog post aims to shed light on the landscape of bridging loan providers, highlighting the key considerations and recommending a trusted broker to guide you through the process.
The landscape of bridging loan providers in the UK
Bridging loans are offered by a diverse range of financial institutions in the UK, encompassing traditional banks, specialist bridging lenders, and private equity firms. Each lender has its own set of criteria, interest rates, and terms, making it essential to conduct thorough research and compare options before making a decision.
Traditional banks:
Several high-street banks in the UK, such as Barclays, HSBC, and NatWest, offer bridging loans to their customers. These banks typically have stringent eligibility requirements and may prioritise lending to existing customers with a strong credit history.
Specialist bridging lenders:
A growing number of specialist bridging lenders have emerged in the UK, catering specifically to the needs of borrowers seeking short-term financing. These lenders often offer more flexible criteria and quicker turnaround times compared to traditional banks.
Private equity firms may also provide bridging loans, often for larger property transactions or complex scenarios. However, these loans may come with higher interest rates and more stringent terms.
Key considerations when choosing a bridging loan provider:
- Purpose of the loan: Clearly define the purpose of the bridging loan, whether it’s for property purchase, business funding, or unforeseen expenses. This will help narrow down your options.
- Loan amount: Determine the exact amount of funding required. Lenders may have minimum and maximum loan amounts they are willing to provide.
- Property value: The value of the property being used as security will play a significant role in determining the loan amount and interest rates.
- Repayment period: Bridging loans typically have shorter repayment periods compared to traditional mortgages, ranging from a few months to several years.
- Interest rates: Interest rates on bridging loans can vary depending on the lender, loan amount, and repayment period. Carefully compare rates and factor in any additional fees or charges.
Navigating the maze with a trusted broker
Given the complexity of bridging loan options and the importance of securing the right terms, seeking guidance from an experienced broker can be invaluable. A reputable broker can act as an intermediary between borrowers and lenders, providing expert advice, comparing options, and negotiating favourable terms on your behalf.
UK Property Finance: a trusted broker for bridging loan solutions
At UK Property Finance, we stand out as one of the leading providers of bridging loan solutions in the UK. With a vast network of lenders and a deep understanding of the market, ukpropertyfinance.co.uk can help you find the most suitable bridging loan for your specific needs. Their team of experienced brokers will guide you through the entire process, from the initial assessment to securing the loan, ensuring a smooth and successful outcome.
Bridging loans offer a valuable financial tool for individuals and businesses seeking short-term funding. While the landscape of lenders can be overwhelming, careful research, understanding your requirements, and seeking guidance from a trusted broker like ukpropertyfinance.co.uk can empower you to navigate the maze of bridging loan options and secure the right solution for your needs. Embrace your property dreams with confidence and financial prudence.
What Does Martin Lewis Say About Equity Release?
Martin Lewis is a renowned British financial journalist and consumer champion. He is the founder of the Moneysaving Expert website and is widely respected for his independent and impartial advice.
Lewis has spoken extensively about equity release, a type of loan that allows homeowners to access the equity tied up in their property. He has stated that equity release can be a useful financial tool for some people, but it is important to consider the potential risks and drawbacks before taking out a loan.
Lewis’s key points about equity release:
- Equity release can be a good way to access money to help you live a better retirement.
- Equity release is not a decision to be taken lightly, and it is important to seek professional advice before proceeding.
- Equity release can have a significant impact on your inheritance.
- Equity release is not suitable for everyone, and it is important to consider your individual circumstances.
Here is a more detailed look at Lewis’s views on equity release:
- Equity release can be a good option for homeowners who are asset-rich but cash-poor. This means that they have a lot of equity in their home, but they are struggling to make ends meet. Equity release can allow them to access this equity and use it to improve their quality of life.
- Equity release can be a good way to pay off debts or fund other large expenses. For example, some people use equity release to pay for home repairs, long-term care, or to help their children with a deposit on a house.
- Equity release can be a good way to supplement your income in retirement. If your pension is not enough to cover your living costs, equity release can provide you with a lump sum or a regular income stream.
Equity release is not suitable for everyone. It is important to consider the following risks and drawbacks before taking out a loan:
- Equity release can reduce the amount of inheritance you leave behind. This is because the loan is repaid from the sale of your property when you die or move into long-term care.
- Equity release can be an expensive way to borrow money. Interest rates on equity release loans are typically higher than standard mortgage rates.
- Equity release can have a negative impact on your credit score.
Lewis’s overall advice on equity release is that it can be a useful financial tool, but it is important to consider the potential risks and drawbacks before taking out a loan. He recommends that people seek professional advice from an independent financial advisor before proceeding.
Do Secured Loans do Credit Checks? Unveiling The Truth
As individuals explore financial avenues to meet their needs, questions often arise about the intricacies of the lending process. One common question is, “Do secured loans do credit checks?” In this blog post, we will unravel the truth behind credit checks for secured loans, shedding light on how this vital aspect of the lending process impacts borrowers.
Understanding Credit Checks for Secured Loans
The nature of secured loans
Secured loans are a category of loans where borrowers provide collateral, such as real estate or valuable assets, to secure the loan. The collateral acts as a safety net for lenders, reducing the risk associated with the loan.
Collateral vs. credit check
While collateral is a key factor in secured loans, it doesn’t eliminate the need for a credit check. Lenders use credit checks to assess the borrower’s creditworthiness, financial history, and ability to repay the loan.
The collateral provides security for the lender, but credit checks offer additional insight into the borrower’s overall financial health.
Secured loans and credit scores
Credit checks for secured loans may not be as stringent as those for unsecured loans. The presence of collateral allows lenders to be more flexible, making secured loans accessible to individuals with varying credit profiles.
However, a positive credit history can still positively impact the terms and conditions of the loan, influencing interest rates and repayment terms.
Loan amount and terms
The results of a credit check can influence the loan amount a borrower is eligible for and the terms of the loan. Individuals with higher credit scores may have access to larger loan amounts and more favourable interest rates.
Impact on approval
While a credit check is part of the evaluation process, having a less-than-perfect credit score doesn’t necessarily mean automatic rejection. Secured loans are designed to provide a pathway for individuals with varying credit histories to access financing by leveraging their collateral.
Alternative lenders and credit checks
Depending on the lender, the stringency of credit checks can vary. Traditional banks may have more rigid credit requirements, while alternative lenders, including online platforms and credit unions, may offer more flexibility.
In conclusion
In conclusion, secured loans do involve credit checks, but the impact of the credit check on the loan approval process is different compared to unsecured loans. The presence of collateral provides a layer of security for lenders, allowing for greater flexibility in lending decisions.
As borrowers navigate the world of secured loans, it’s essential to be aware of the relationship between credit checks, collateral, and loan terms. Seeking guidance from financial advisors and exploring options with lenders who specialise in secured loans can help individuals make informed decisions aligned with their financial goals and credit profiles.
BTL Remortgage Declined
Remortgaging a Buy to Let property can be a surprisingly simple yet affordable way of raising funds for almost any project or purpose. That said, refinancing a Buy to Let property is not the same as remortgaging the home you live in.
As a Buy to Let property is technically a business investment, it is viewed somewhat differently by most banks and lenders. The fact that the applicant may already have an extensive portfolio of properties and loan products may factor into their eligibility checks.
Reasons for Buy to Let Refinance Refusal
Application rejections are always disappointing, though can always be attributed to one or more important issues. As with most mortgages and remortgage deals, general ‘stress tests’ and background checks will be performed on landlords looking to refinance Buy to Let properties.
Examples of which include credit history tests, assessment of current debts and outgoings, income and affordability checks, total combined equity owned and so on. Should one or more of these checks return a ‘negative’ result, it is unlikely the respective application will be accepted
Alongside these more typical grounds for rejection, there are also several surprisingly common issues that can stand in the way of a Buy to Let refinance application. Mainstream banks and lenders are scrutinising Buy to Let remortgage applicants where one or more of the following apply:
1) Buy to Let Properties with Flat Roofs
This is by no means guaranteed grounds for refusal, but can nonetheless make it more difficult to qualify for a competitive refinancing deal. Irrespective of the quality or structural integrity of the property, flat roofs are considered higher-risk than more ‘conventional’ roofs and often require more maintenance. It is therefore assumed by many lenders that flat roofs can make properties more difficult to sell out, which is why they can show reluctance to lend against them.
Where all types of non-standard properties and property configurations are concerned, it is essential to consult with an independent broker if considering refinancing.
2) Late-Night Businesses and Premises Nearby
The most obvious examples to illustrate this point would be bars, pubs and nightclubs in proximity to the property in question. Properties positioned too closely to late-night businesses and certain types of premises could be considered difficult properties to sell, given the disruption a nuisance caused by their neighbouring properties. If there is a chance that late-night revellers could keep the occupants of the property awake, a lender may consider it a high-risk property to lend against.
The same may also apply (though to a lesser extent) to properties located near busy railways or directly under flight paths.
3) Undesirable Odours
Another factor taken into account by many refinance specialists is the presence of restaurants, cafés and takeaways in proximity to the property in question. Taking into account the preferences and potential objections of future buyers, any Buy to Let property exposed to undesirable odours of any kind may be considered to have diminished future sales potential. The most obvious examples of which being flats located directly above or adjacent to chips shops, kebab shops, curry houses and so on.
Even if you have no objections to these kinds of fragrances personally, they may be considered an issue by your lender.
4) Japanese Knotweed
This problematic plant continues to represent a thorn of thousands of property owners across the UK. In almost all instances, mainstream residential mortgage lenders will immediately close their doors where the word ‘knotweed’ comes into the equation. The presence of knotweed isn’t something that can (or should) be covered up, as to do so could land you in serious trouble at a later date.
If you suspect one or more of your properties may be affected by Japanese knotweed, it is essential to organise its destruction and removal at the earliest possible stage. Otherwise, you may find it difficult to refinance the property in question and impossible to sell it at a later date.
5) Lease Coming to an End
Another factor considered grounds for refusal by many lenders is when the applicant’s lease on their property is coming to an end. As a general rule of thumb (though not always the case), any Buy to Let property with less than 70 years remaining on its lease could be extremely difficult to refinance or sell. This is because it is considered to be a depreciating asset, which could present future complications as the lease draws closer to its conclusion.
Issues surrounding lease expiration can be complex to address, which is why it is important to take action at the earliest possible stage.
Consult with an Independent Broker
Whether you are seeking clarification with a rejected application or simply looking to ensure you get the best possible refinancing deal, consulting with an independent broker is the way to go.
Issues surrounding lease expiration can be complex to address, which is why it is important to take action at the earliest possible stage.
Irrespective of your requirements and the extent of your property portfolio, an experienced broker can help you understand the available options and get the best possible deal from a specialist lender.
Remortgage Guide
Realistically, there are just two approaches you can take if you decide to refinance your home:
Take your business directly to your chosen bank or lender
Work with a trusted independent mortgage broker
While it is technically possible to access a good deal with either approach, working with a broker is guaranteed to save you time, effort and money. You need only consider the complexities of calculating your requirements and completing your application to understand the value of independent broker support.
If you choose to remortgage your home manually, this is how the initial process works:
- Establish the value of your property. You can get a basic indication of your property’s value using an online portal like Zoopla, though you may need to pay for a formal valuation your lender will accept.
- Calculate your equity. This means working out how much you still owe your lender, in order to determine how much of your property you actually own and how much of your mortgage is outstanding.
- Consider remortgage options. Irrespective of your requirements, you will need to choose between several types of remortgage loans: Interest-only, repayment, tracker, discount, fixed rate and so on.
- Compare the market. Before applying, you also need to conduct an extensive and comprehensive market comparison, taking into account hundreds of potential offers from dozens of competing lenders.
- Submit your application. Only then can you begin the formal application process, which includes provision of sufficient supporting documentation to verify your financial position and eligibility.
In a typical case, organising a refinancing deal independently takes approximately two months. If there are any delays or complications along the way, it can take significantly longer.
Working with a broker, the vast majority of the complications involved in applying for a refinancing deal are taken care of on your behalf. As an added bonus, your broker will also handle the negotiation process to ensure you gain access to an unbeatable deal.
As the vast majority of reputable brokers offer all the above free of charge (for the borrower), it simply makes sense to seek expert support at the earliest possible stage.
Remortgage or Equity Release
Equity release is becoming an increasingly popular option for UK homeowners looking to tap into the capital they have tied up in their homes. Likewise, anyone who has an existing mortgage can leverage their equity by choosing to remortgage. This basically means taking out a new mortgage that is bigger than their existing mortgage, in order to raise funds for any given purpose.
The important question being that when both options are available, which is best? If you intend to access the equity you have tied up in your home for any reason, should you remortgage your property or consider an equity release scheme?
Reasons for Releasing Equity or Remortgaging
Equity release schemes and refinance deals can be used to raise funds for almost any purpose whatsoever. With most people, the home you own is the single most valuable and important possession you will take ownership of.
Not to mention, an asset that can be used to secure a wide variety of financial products against.
Some of the most common reasons for releasing equity or remortgaging include funding home improvements, major extensions and renovations, second property investments, vehicle purchases and so on.
Rather than taking out a second loan to cover the costs, you instead ‘unlock’ the value of your current home to get a better deal.
How Do You Calculate Equity?
The equity you have in your home is calculated by subtracting your outstanding mortgage debt from the current market value of your home. In a typical example, if your home has a current market value of £300,000, and you still have an outstanding mortgage balance of £220,000, you have £80,000 of equity.
With most lenders, the amount of equity you have tied up in your property will influence your eligibility for financial support and the amount of money you can borrow. You may also find that depending on how much equity you have tied up in your home, there are various different options to explore when looking to raise funds.
Whatever your objectives and current financial position, it is essential to consult with an independent broker to ensure you understand the available options. Particularly if considering entering into a refinancing deal or equity release scheme, you need to carefully consider the advantages and disadvantages, before going ahead.
Remortgaging to Release Equity
One of the easiest and most affordable ways to release equity tied up in your property is to remortgage. Whether you choose to stick with your current lender or search for a better deal elsewhere, remortgaging is a good option for raising funds for almost any purpose.
This type of refinancing works by effectively ‘extending’ your existing mortgage and replacing it with a larger loan. You initially took out a mortgage of £200,000 and have subsequently repaid £70,000. You need to raise funds for a major home improvement project, therefore you replace your remaining £130,000 mortgage with a £180,000 refinance loan, subsequently freeing up £50,000 to fund the refurbishments.
In many instances, switching to a new lender can also result in significantly lower monthly repayments and a more competitive rate of interest for the life of your mortgage. Speak to an independent broker to discuss a whole-market comparison, if considering remortgaging to release equity.
Equity Release
An equity release scheme can also make it quick and easy to access the capital tied up in your home. The biggest difference being that with equity release, you effectively transfer ownership of your home (in part or in full) to a third-party lender. Subsequently, the money provided is repaid in full when your home is sold, either when you pass away or move into permanent care.
Equity release can be a good option for individuals and households who are ‘cash poor’ but ‘asset rich’. For example, you may live in a property with a value of £500,000 or more, yet have little to no savings or income at your disposal. Enrolling in an equity release scheme could allow you to access some or all of the money tied up in your home, while at the same time enabling you to live there rent-free (or for a small monthly ‘rent’ fee) for the rest of your life.
The downside of equity release being the way in which all such schemes will significantly reduce the value of your estate and your ability to pass your assets on as inheritance. You may also find that equity release impacts your state benefit entitlement and your tax position.
Under no circumstances should equity release be considered without first seeking expert advice from an independent broker or qualified financial advisor.
Independent Broker Support
By far the quickest, easiest and most cost-effective way to leverage the money tied up in your home it to seek the support, input and expertise of an established broker.
Along with helping you get to grips with the available options, your broker will work hard to negotiate the best possible deal on your behalf with a panel of specialist lenders across the UK.
Why Remortgage?
If it is possible to switch to a better deal and save significant sums of money, refinancing is the obvious choice. Even when taking into account potential early exit fees and arrangement fees for the new loan, you could still reduce your immediate and long-term outgoings.
Nevertheless, the potential complications involved in refinancing can be off-putting for many. As can deciding when the precise moment comes to go ahead and refinance.
Why Should I Remortgage?
Some motivations for remortgaging a property are more obvious than others. Every refinance customer has their own unique priorities and objectives, though the following represent the most common reasons for remortgaging in the UK:
1. Your current mortgage deal (or introductory rate) is coming to an end, and you would like to start a new deal elsewhere.
2. You want to switch to a new provider who has offered you a much lower rate of interest than your current lender.
3. You would like to release some equity tied up in your home in a convenient and cost-effective way.
4. Furthermore, you intend to pay off your mortgage earlier than initially planned to save money on the life of the balance.
5. You want to switch from an interest-only mortgage to a standard repayment mortgage.
6. You are in any way dissatisfied with your current lender and would like to switch to a new deal elsewhere.
Far too many mortgage customers across the UK simply ‘accept’ that they are locked into a deal they are not happy with, without realising how quick and easy it can be to switch to a new deal with a new provider.
If you are in any way dissatisfied with your current mortgage or believe you could save money by switching, it is in your best interests to do so at the earliest possible juncture.
When Should I Remortgage?
In any instance where remortgaging could save you money, the sensible time to do so is as quickly as possible. The longer you remain locked into an uncompetitive deal, the more money you needlessly waste.
This is why one of the most common times to shop for a remortgage is when the introductory period of an existing mortgage comes to an end.
In a working example, your lender may offer you an introductory rate of 2% for the first 36 months, after which your loan will shift to the bank’s standard 5% variable rate of interest. In which case, switching to a new provider towards the end of this initial 36-month period could mean starting a new loan with a new introductory (or permanent) rate of interest far lower than 5%.
Refinance with the right deal at the right time, and it is possible to save thousands of pounds a year for the entire life of your mortgage.
If your intention is to raise funds for a property improvement project or a major expense, it is simply a case of establishing the affordability or otherwise of the loan.
Independent Advice
As you cannot always rely on any specific bank or lender to provide the objective and impartial advice you need, it is advisable to consult with an independent broker to discuss the available options.
Use an online remortgage calculator to assess the affordability of the loan you need, before booking an obligation-free consultation to discuss the next step. If you choose to go ahead, your broker will handle all aspects of the market comparison and refinance negotiation process on your behalf.