CFA Case Studies

Every commercial finance transaction is unique in some respect. The following examples are just a cross section of recent cases where commercial finance has been successfully arranged.

Shop with living accommodation

Mr and Mrs Smith required finance to purchase a freehold shop and living accommodation in a busy SW town: purchase price £350,000. The audited accounts showed that the turnover of the shop was just over £150,000 per annum producing a net profit before tax of £35,000. Also, Mr Smith would remain with his employers on an annual gross salary of £22,000

Mr and Mrs Smith were able to raise a deposit of £100,000 from the sale of their home but because other parties had expressed an interest, a 6-month bridging loan for £110,000 was arranged to enable them to buy the business immediately and pay the fees.

The bridging loan was repaid from the sale of their home leaving in place a commercial mortgage of £270,000 (purchase price, fees and working capital). The lender agreed to a 25-year mortgage at Bank Base Rate plus 2% and a £10,000 overdraft facility.

The business is trading profitably.

Public House and Bed & Breakfast

Mr Jones had been a hotel manager for over 20yrs before deciding he would like to run his own business using his catering and hotel experience. He was offered the opportunity to purchase a freehold Public House with living accommodation and 4 letting rooms but could only raise a £50,000 deposit and therefore felt he could not afford the full asking price of £400,000 plus a further £35,000 for the stock.

The vendor eventually agreed to accept £350,000. The principal finance of £200,000 was raised from a specialist commercial mortgage lender at 2.25% over Bank Base Rate and the brewery agreed to a loan of £135,000 repayable through a lower discount on wet sales.

Mr Jones increased the turnover and profits and has since sold the business for £650,000 plus stock.

Commercial and residential investment properties

Mr D owned an industrial unit that had been let to the same tenant for 10 years. Demand in the area for this type of accommodation was high and the lease was due to expire but before putting the property on the market Mr D offered the existing tenants a discount on the market rate if they renews the lease for a further 10 years. The tenants agreed subject to the property being upgraded.

The cost of the upgrade was quoted at £50,000 and Mr D decided to try to arrange a further advance on his current mortgage of £250,000 but was refused. A £360,000 refinance package was negotiated with one of the bank's main competitors which as well as financing the refurbishment and fees allowed Mr D to invest a £55,000 in a buy-to-let property supported by a mortgage of £175,000.

Mr D has recently invested in 2 more buy-to-lets with mortgages raised against his commercial and residential properties.

Garage Repair and Paint Shop

A large unit occupied on a 10-year lease. The tenants, a limited company, were offered the freehold for £1m representing a 10% discount on the open market value. The directors had approached their own bank for a loan of £750,000 but were refused. The maximum the bank was prepared to offer was 65% of the £1m discounted price. By combining a 75% commercial mortgage, factoring debts, the sale and lease back of equipment and a supplier's loan the funding was arranged.

Hotel

The owners had purchase the business two years previously with a high rate loan and had greatly improved its trading and finances. A commercial mortgage, equivalent to 90% of the bricks and mortar value of the property was raised at Bank Base Rate plus 1.8% to replace the existing high rate mortgage (BBR + 3.5%) and provide funds for improvements.