Whether you’re looking to purchase commercial premises, expand your business, invest in property or secure short-term funding for a time-sensitive opportunity, finding the right finance can be a crucial part of making your plans happen.
But commercial finance isn’t a single type of loan. There are a range of funding solutions available, and the most suitable option will depend on what you’re looking to achieve, your circumstances, the property or asset involved and how you intend to repay the borrowing.
For business owners, property investors and developers, understanding the different types of commercial finance available can help you make more informed decisions about your next move.
At Mallard Commercial Finance, we help businesses, investors and property professionals explore their commercial and specialist finance options, drawing on extensive industry experience and access to a broad lender panel.
What is commercial finance?
Commercial finance is a broad term used to describe funding designed to support businesses, commercial property transactions and investment opportunities.
Unlike a standard residential mortgage, commercial finance is often structured around the specific circumstances of the borrower, the purpose of the funding and the asset or property involved.
Depending on your requirements, commercial finance could potentially be used to:
- Purchase commercial premises
- Refinance an existing commercial mortgage
- Purchase a commercial investment property
- Finance a semi-commercial property
- Fund a property purchase where traditional finance isn’t suitable
- Bridge a short-term funding gap
- Support property investment
- Provide business funding
- Fund specialist business sectors
- Release capital from commercial property
The important thing to understand is that there isn’t necessarily a one-size-fits-all solution.
What types of commercial finance are available?
The commercial finance market includes a wide range of products and funding structures. Some are designed for longer-term borrowing, while others provide short-term finance where speed and flexibility are important.
Here are some of the options you may come across.
Commercial mortgages
A commercial mortgage is generally used to purchase or refinance property that is used for business or investment purposes.
For example, a business may want to purchase its own premises rather than continue renting, while an investor may be looking to purchase a commercial property to let to tenants.
Commercial mortgage lending can be more complex than a standard residential mortgage, with lenders considering factors such as the property, its intended use, the borrower’s financial position and the overall strength of the application.
A commercial mortgage could potentially be suitable for:
- Owner-occupied business premises
- Commercial property investment
- Refinancing an existing commercial mortgage
- Purchasing commercial property for rental income
The right solution will depend on the individual circumstances of the application.
Semi-commercial finance
Semi-commercial finance is designed for properties that combine residential and commercial elements.
A common example is a shop with a flat above, although there are many different types of mixed-use property.
These properties can fall into a more specialist area of the mortgage market because they don’t fit neatly into either standard residential or straightforward commercial lending criteria.
The lender’s approach can depend on factors including the split between residential and commercial use, the property itself and how it will be used.
For investors considering a mixed-use property, specialist advice can therefore be particularly valuable.
Bridging finance
Bridging finance is a short-term funding solution designed to help borrowers bridge a gap between two stages of a transaction or provide finance where traditional lending isn’t suitable.
For example, bridging finance could potentially be used when:
- A property needs to be purchased quickly
- A buyer is waiting for another property to sell
- A property is not currently suitable for a standard mortgage
- A refurbishment needs to be completed before longer-term finance can be arranged
- A time-sensitive investment opportunity arises
Bridging finance is typically designed around a clearly defined exit strategy, such as selling the property or refinancing onto longer-term finance.
Because bridging finance is designed for short-term borrowing, understanding the costs, timescales and proposed exit strategy is particularly important.
Commercial investment finance
Commercial investment finance can be used by investors looking to purchase or refinance commercial or semi-commercial property that is intended to generate rental income.
For example, an investor could be considering:
- Retail premises
- Offices
- Industrial units
- Warehouses
- Mixed-use properties
The potential rental income, property value and strength of the overall investment proposition can all be important considerations when a lender assesses an application.
Residential investment finance
Commercial finance isn’t limited to commercial property.
Property investors and landlords may also require specialist residential investment finance when purchasing or refinancing residential property intended to be rented to tenants.
The most suitable funding structure can depend on factors including the type of property, the investment strategy and the borrower’s circumstances.
Unsecured business finance
Not every business funding requirement involves property.
An unsecured business loan can provide access to funding without securing the borrowing against a business asset or property.
Businesses may consider this type of finance when they need additional capital for purposes such as expansion, cash flow or other business requirements.
The available options and eligibility criteria can vary between lenders, so it is important to consider the overall cost and suitability of any finance before proceeding.
Specialist sector finance
Some industries have particularly specific funding requirements.
For example, Mallard Commercial Finance provides specialist finance support within areas including healthcare and the care home sector.
Healthcare professionals such as dentists, pharmacists, GPs and vets may require finance to purchase a practice, buy into an existing business, acquire commercial premises or fund expansion.
Care homes can also require specialist long-term funding structures because of the nature and value of the businesses and properties involved.
Specialist finance can be particularly useful where a funding requirement doesn’t fit a straightforward high-street lending model.
How do you know which type of commercial finance you need?
This is one of the most important questions to consider.
The right type of finance will depend on what you’re trying to achieve.
For example:
Want to buy your own business premises?
A commercial mortgage could potentially be appropriate.
Looking to buy a shop with a flat above?
Semi-commercial finance may be worth exploring.
Need to complete a purchase quickly before arranging longer-term funding?
Bridging finance could potentially provide a short-term solution.
Looking to purchase a commercial property as an investment?
Commercial investment finance may be appropriate.
Need funding for a business requirement without securing property?
An unsecured business loan could be an option.
Looking to acquire or expand a specialist business?
Specialist commercial finance may provide a more suitable route than a standard business loan.
However, these are only examples. Every application is different, and the most appropriate solution will depend on the individual circumstances.
What do commercial finance lenders look at?
Commercial finance applications can involve more than simply looking at a credit score.
Depending on the type of finance you’re applying for, a lender may consider factors such as:
The purpose of the borrowing
What are you using the finance for?
A lender will want to understand the transaction and what the borrowing is intended to achieve.
The property or asset
For property-backed finance, the lender will typically assess the property itself, including its value, location, condition and intended use.
Your financial position
Your personal and/or business finances can form an important part of the assessment, depending on the type of borrowing.
Your experience
For some specialist transactions, relevant experience can be an important consideration.
For example, a property development proposal may be assessed differently depending on the applicant’s previous experience with similar projects.
Your exit strategy
This is particularly important for short-term finance such as bridging.
The lender needs to understand how you intend to repay the borrowing at the end of the agreed term.
The overall proposition
Ultimately, lenders will consider the application as a whole.
This is one reason why commercial finance can benefit from specialist advice. Finding a lender isn’t necessarily just about finding one that offers the lowest advertised rate. It’s about understanding which lenders are likely to consider the particular circumstances and structure of the transaction.
Why use a commercial finance broker?
The commercial finance market can be complex, particularly when your circumstances don’t fit a straightforward lending model.
A commercial finance broker can help you understand the different funding routes available and identify lenders that may be suitable for your requirements.
At Mallard Commercial Finance, we have access to an extensive lender panel that includes high-street banks, smaller specialist lenders and providers in between.
This means we can look beyond a single lender and consider the wider market when exploring potential funding solutions.
Our role isn’t simply to find finance. It’s about understanding what you’re trying to achieve, assessing the available options and helping you navigate the process from initial enquiry through to completion.
When should you start looking for commercial finance?
Ideally, as early as possible.
Commercial transactions can involve more moving parts than a standard residential mortgage, particularly where specialist lending, property purchases or development projects are involved.
Starting the conversation early can give you more time to:
- Understand your potential borrowing options
- Establish how much funding you may require
- Identify any potential issues
- Prepare the necessary documentation
- Consider different lender requirements
- Build a realistic timescale for the transaction
This can be particularly important when dealing with time-sensitive property purchases or transactions involving multiple stages of finance.
Common commercial finance mistakes to avoid
Choosing finance based solely on the interest rate
The cheapest headline rate isn’t necessarily the best overall solution.
Fees, arrangement costs, early repayment terms, loan structure and lender criteria can all affect the suitability and overall cost of finance.
Leaving finance until the last minute
Some commercial transactions require more preparation than others. Starting early can give you more options.
Assuming your bank is your only option
Your existing bank may be suitable, but it isn’t necessarily the only lender that could consider your circumstances.
The commercial lending market includes high-street banks alongside specialist lenders with different approaches to risk and eligibility.
Not considering the exit strategy
If you’re using short-term finance, you need to have a realistic plan for repaying it.
Your exit strategy should be considered before the finance is arranged, rather than once the loan is already in place.
Assuming your circumstances are too complicated
Commercial finance is often more flexible than borrowers realise.
If you’ve been turned down by a mainstream lender or your circumstances don’t fit a standard lending model, it doesn’t necessarily mean that finance isn’t available.
It may simply mean that a different type of lender or funding structure needs to be considered.
Mallard Commercial Finance: Specialist support for your next funding requirement
Commercial finance can open up opportunities for businesses, property investors and developers, but choosing the right funding structure is an important decision.
At Mallard Commercial Finance, our team has extensive industry experience and understands that every commercial finance requirement is different.
We’re based in Sheffield and work with a broad range of lenders, from high-street banks to smaller specialist providers, helping clients explore potential solutions for their individual circumstances.
Whether you’re looking to purchase commercial premises, invest in property, arrange bridging finance or explore a specialist funding requirement, we’re here to make the process as straightforward as possible.
Looking for commercial finance?
If you’re considering your next business or property investment and want to understand your funding options, speak to Mallard Commercial Finance for an initial conversation about your requirements.
Frequently Asked Questions
What is commercial finance?
Commercial finance is a broad term covering a range of funding solutions designed for businesses, commercial property transactions, property investment and specialist borrowing requirements.
What can commercial finance be used for?
Depending on the type of finance, it can potentially be used to purchase or refinance commercial property, fund property investment, bridge a short-term funding gap, support business requirements and finance specialist commercial transactions.
What is the difference between commercial finance and a commercial mortgage?
Commercial finance is a broad term covering different types of funding. A commercial mortgage is one specific type of commercial finance, generally used to purchase or refinance commercial property.
Can a small business get commercial finance?
Potentially, yes. The options available will depend on the business, its financial position, the purpose of the borrowing and the lender’s criteria.
Can I get commercial finance if my circumstances are complicated?
It may be possible. Specialist lenders can have different lending criteria from high-street banks, which means that an application that doesn’t fit one lender’s criteria may still have other potential options.
What is bridging finance used for?
Bridging finance is generally used as short-term funding to bridge a gap between two stages of a transaction. Examples can include property purchases, chain breaks, refurbishment projects and situations where longer-term finance isn’t immediately available.
Do I need a commercial finance broker?
You don’t necessarily have to use a broker, but specialist commercial finance can be complex and the lender that is right for one transaction may not be suitable for another. A broker can help you understand the options and identify potential lenders for your circumstances.
Is commercial finance regulated?
The regulatory position depends on the specific product, purpose of the borrowing and circumstances of the borrower. Some commercial finance is regulated and some is not. It’s important to understand the regulatory status of any finance before proceeding.
