Finance guides

Our Association is principally made up of commercial mortgage and leasing and asset finance brokers. But there are many other fields of finance and many other brokers who have different spheres of expertise, including in short-term finance, cashflow finance, pension-led funding, invoice finance, development finance, buy-to-let finance, and unsecured finance. So if a small business is looking to raise funds, an NACFB broker can suggest the most efficient and appropriate way to do so.

Below you'll find a brief description of each of the key sectors of commercial finance and we'll soon be making available downloadable guides authored by some of the UK's leading lenders.

Commercial Mortgages 

Generally, commercial mortgages are for 15 years or more, and, as with a residential mortgage, the premises will be at risk if you are unable to keep up your repayments. The majority of mainstream lenders offer commercial mortgages, but it’s important that you can meet their lending criteria. Although some lenders may still accept applicants or businesses with an adverse credit history, it helps if you can show a clean credit record, as this will give you greater choice and a more competitive deal. Lenders will apply a loan to value ratio to the mortgage and will often require you to invest some of your own money into the property.

Bridging or short-term Finance

A bridging loan is a type of short-term property-backed finance. They are often used to fund the borrower for a short period of time whilst allowing them to either refinance to longer term debt or sell a property. Bridging loans are usually offered for between 1 and 18-months, with the loan repayable in full at the end of the term. Unlike other forms of borrowing the monthly interest is often rolled into the loan, meaning there are no repayments to make during the term of the loan. The application process is usually far simpler than for other types of borrowing and applications can complete very quickly, usually in 5 to 14 days.

Asset Finance

Asset finance is a loan that is used primarily to obtain equipment. Whenever organisations invest in tangible assets – anything from office equipment to manufacturing plants, from cars to a fleet of aircraft – they usually need an affordable, secure means of finance. Asset finance is a flexible alternative to a traditional bank loan, providing significant cash flow and tax benefits for businesses looking to purchase a new piece of equipment, a vehicle or other fixed assets. In fact, asset finance is the third most common source of finance for businesses, after bank overdrafts and loans, and it is also of growing importance in the public sector.

Invoice Finance

Invoice finance is a general term to describe a range of asset-based finance facilities, whereby businesses sell their accounts receivable, more commonly known as invoices, to a third-party for a percentage of their overall value. It’s a useful financing tool for businesses whose growth is hampered by slow payment of invoices. Invoice financing tends to be more flexible than business loans or overdrafts and decisions to lend against invoices can often be made faster by lenders. This form of funding often grows in-line with the company’s turnover and typically SMEs get a greater level of borrowing against their assets.

Cashflow Finance

Cashflow finance is a form of financing in which a loan made to a company is backed by a company's expected cashflow. Cashflow finance differs from an asset-backed loan, where the collateral for the loan is based on the company's assets. The schedules or repayments for cash-flow loans are based on the company's projected future cash flows. Cashflow finance is not a loan product and as such does not have an APR or fixed monthly repayments. An upfront fee, sometimes known as a factor rate, is applied to the requested sum and then the business pays back this total amount via an agreed percentage of their debit/credit card takings.

Buy-to-let Finance

A buy-to-let mortgage is a mortgage for purchasing residential property with the specific intention of letting it to tenants. Buy-to-let mortgages have been around since 1993 when the Association of Residential Letting Agents coined the term. Before then landlords and residential property investors used commercial mortgages to buy property to rent to tenants. Because buy-to-let mortgages are riskier for lenders, the borrower is likely to need a bigger deposit than with residential mortgages. Lenders will expect to see evidence that any expected rent will cover mortgage payments by at least 125%. They’ll also want the borrower to acknowledge that a buy-to-let property is principally a long-term investment.

Development Finance

When significant work needs to be done on a commercial property or the site on which it stands, for instance, one which has fallen into disrepair or where there is a change in use, this is covered by development finance. Because the property itself is being taken as collateral, this is a low-risk and so relatively low-cost lending type. Repayment periods can be longer than short-term lending, though there is overlap between the two finance types. Lenders will want to know full details of the proposed development, including proposed contractor, build programme and satisfactory exit route. Many will insist on the developer having a good level of experience.

Unsecured Finance

An unsecured loan is a loan that is issued and supported only by the borrower's creditworthiness, rather than by any type of collateral. Unsecured loans, sometimes referred to as signature loans or personal loans, are obtained without the use of property or other assets as collateral. The terms of such loans, including approval and receipt, are therefore most often contingent on the borrower's credit score. Unsecured loans are bigger risks for lenders, and as a result, they typically have higher interest rates and require higher credit scores than secured loans, such as mortgages or car loans. In some instances, lenders will allow loan applicants with insufficient credit to provide a co-signer.