What is property finance and what does it mean for my business?

Chloe Bell
By Chloë Bell, Content Journalist

If you’re running a business and are looking into different funding options, you might have heard the term ‘property finance’. Although it can sound daunting, property finance is a popular avenue for lots of small businesses and can help boost your finances in a number of ways.

We've put together this helpful guide detailing what property finance is and what kinds of businesses it suits. 

What is property finance?

Property finance loans are typically short-term loans and are great for giving businesses quick cash access to develop and grow. Property finance loans often cover the costs of converting an existing property or developing your business. It is normally advanced as a loan, or alternatively secured against your current business property or land assets.

Why is property finance important?

Property finance is a great choice for lots of business owners because it is considered one of the most straightforward funding options available. This kind of finance is quite similar to a secured business loan.

When business owners opt for property finance, it means they secure the loan against their residential or business property. Property finance is a plausible option for businesses that have strong potential to grow and develop but don’t have a huge amount of money to spend on achieving their goals.

What are the different types of property finance?

There are a few different types of property finance and the option you choose will depend on your business, its size, your existing properties and your business goals.

Development finance

One type of property finance on offer is development finance. This loan means the lender will give your business money to purchase a property and complete any building work. Most development finance lenders offer an initial loan based on the purchase price of the property and will fund it 100%.

Bridging loans

The next type of property finance is a bridging loan. This is a short-term funding option that aims to ‘bridge’ the gap and is often used to pay tax bills, complete building developments, rectify bad credit, fix negative cash flow or complete building work quickly on a new property. 

A standard bridging loan usually lasts for around 12 months, however, sometimes the term can reach two years. At the end of the agreed term, the business owner pays back the money and any interest in one simple payment. Bridging loans can be used for almost anything that will help your business in the long or short term.

Commercial property loan

The next type of property finance is commercial property finance and this kind of loan lets you borrow money to start or grow your business. Commercial property loans are secured against your current residential or business property and these types of loans can last anywhere up to seven years. 

Some common reasons why a business owner may opt for a commercial property loan are to help fund renovations, invest in new premises, pay off unexpected bills or boost business growth. These loans mean you can borrow what you need and take advantage of the flexible terms it offers. 

Term loan

The next type of property finance is a term loan. These solutions refer to a fixed-term loan that can last up to seven years. You receive the full amount, then you just repay the loan and interest in monthly instalments.

Term loans are a popular option for small business owners as they are able to gradually reduce the amount they owe without having to fork out a great deal of money all at once. 

Interest-only loan

Next up is an interest-only loan. These can last up to five years and businesses are often able to borrow anywhere between £25k and £20m. With these types of loans, you need to pay monthly interest as well as a final, larger payment to fully cover the loan amount.

Why would a business opt for property finance?

There are lots of reasons a business might choose property finance to start or fund the development of their company. 

A lot of businesses need fast access to money to purchase vital (and sometimes expensive) equipment or machinery. Property finance is a great way to do this. Other reasons why businesses might choose property finance over other options are to buy new premises, fund a business premises renovation, pay off unexpected bills or meet growth plans.

How long does it take to secure commercial property finance? 

It can depend on a wide range of factors. Similar to other types of funding, when you choose property finance, you need to apply and see if you meet the requirements. 

After this, you’ll then select a lender to borrow your money and this selection can be done via a broker or a lending site. Lending sites can be quite useful to you as a business owner as you can be sure that all lenders on the website are regulated and trusted. 

Lastly, once approved, you need to provide your lender with some details about your business. You’ll need to let them know the value of the property you are buying or currently own as well as how much you want to spend on development plans. It’s important to always shop around because different lenders often offer different interest rates.

What’s the best type of property finance for my business?

Again, it really depends on your individual business, the size of your premises, how much money you want to borrow and your overall growth plans. There are lots of options on offer, so it’s a good idea to go through each sub-type of property finance and see which one would suit your business best. 

How can commercial property finance affect my business?

Property finance is a great option for many businesses, but like with all loans, if you aren’t able to manage the monthly instalments then it could negatively affect your business, and your credit score and cause you to plummet into debt. Therefore, it’s always important to make sure you’ll definitely be able to make the repayments on time to avoid causing problems for your business in the future. 

How can Bionic help my business?

Working out how which funding avenue to choose for your business can be a headache but hopefully, you feel more confident about property finance after reading this guide.

Searching for the right finance can leave you strapped for time, you might be concerned you won’t have time to actually run your business effectively.  

Luckily, that’s where Bionic can help you save time, hassle, and unnecessary admin when sorting business essentials. We compare business gas and business electricity, as well as business phone and broadband to help make sure you're on the best deals. 

We can also help with business insurance and business finance. Get in touch to find out more.