Commercial Loans and Developer Finance and Securities

Commercial loans FAQ

• I suppose it will cost the same as buying my house?

  No. It is very different. In addition to “buying” your property your lawyers will be engaged in other matters. Mostly this is because each individual lender has separate requirements so these cannot be ascertained at the outset until the lender has issued the loan offer. Also lenders in this areas are more “belt and braces” which means that they want more “security” for their loans. For instance they may want more searches obtained, more information deduced, cross guarantees, directors guarantees, additional or separate security ( such as a directors home), undertakings from the solicitor, certificates from the solicitor, and other assurances. Buying a HMO brings issues such as licencing, planning , tenancies and local area plans . Most lenders will ask for their legal fees “upfront”- and good rule of thumb for developers fees as a guide on costs is to add 50% to the lenders solicitors fee.

• But this is like my domestic mortgage loan?

  No. Your domestic mortgage has the benefit of protection under the Consumer Credit Act. With Commercial loans lenders are far more hawkish and they ensure that they have the best chance of calling in your loan if they need to without fear of you or a court preventing that.

• How So?

  Commercial Lenders will include terms within their loan agreements which make it much easier for them to “call in” ( ask you to repay) your loan, such as obligations to maintain the property or loan to value ratios.

• Loan To value Ratios? but if I keep up with my payments then they cant ask me to repay surely.

  Yes, they can . For instance if property values go down or below/ over a certain loan to value ratio . For instance if your deposit was originally 50 % of the value of the property but because values have gone down over time it has become , say 30% of the loan value, then a lender can ask you to make up the difference or they can “call in “ your loan.

• But I am a “Guarantor”, surely they would have to argue it out with the company first?

  No, as guarantor, the lender wants you to be there to put things right, so they can move against you if they prefer.

• But my guarantee only extended to the last loan the company took out? Surely its not valid any more?

  It probably is. Unless you get a release most guarantees are expressed as covering any loan with the lender. You should get the lender to give you a “release” from any guarantee after any particular loan has been paid off - even before if there is only a small sum remaining.

• But my solicitor just needs to sign a piece of paper I have been told?

  A solicitor needs to go through a transaction almost as if it was a purchase and obtain additional information and assurances from a borrower. There is more work involved usually than even a purchase and often the solicitor will be dealing with the purchase in addition to the loan aspect.

• What about signing my guarantee – that is just a piece of paper isn’t it?

  No this is an important document. Often given where a director or shareholder guarantees a company loan, each guarantor will likely have to take independent legal advice – i.e get advice from a solicitor other than ourselves/solicitors acting for the borrower. That can be quite costly in comparison to other charges because a process needs to be gone through including attending upon the Guarantor in person, advising him or her in writing, and liaising with the Lenders solicitors and dealing with their requirements. Often a promise is required from the solicitor by the lenders lawyers such as a certificate or undertaking (which is an enforceable solicitors “promise” ) stating what advice has been given.