commercial mortgage

[shamstar]

Hi all

Anyone here had any dealings with virtua online? http://www.Virtuaonline.com/

They have offered a good mortgage on a b&b i would like to purchase

they say the following

"We feel we can be of assistance in providing finance on the following basis:
Purchase Price or Value: £260000
Amount you wish to borrow: £220000
Business Type: Guest House
Finance Type: Loan
Term in Years: 25
Loan to Value: 84%
Interest Rate: 6.25%
This In-Principle offer of finance is
provided without obligation at this
stage It is based on the initial
information provided by you to
VirtuaOnline.Com
There are two Payment Options, you pay only one:
Cost Per Month Interest Only: £1145.83
Cost Per Month Repayment: £1468.40
Interest Only may not be the best
long term solution.
Our charges to you for sourcing the finance:
Booking Fee: £445.00
Valuation Fee To be advised
Paid at application.
Our charges to you for providing the finance:
Arrangement Fee : £1650.00 Paid at completion."

Having talked to high street banks the above seems a really good deal but i have yet to meet anyone who has had any dealings with them. I have a good credit record and own 2 buy to let properties that have plenty of equity in them. I have never had a commercial mortgage before so am very new to this.

[Rob]

As you say, on the face of it a good deal. I don’t know the firm but here are a few things that come to mind.

They are a broker and so at this stage they can’t provide you with any commitment (as they have stated). This means that the figures they have quoted are only a guide and may be not what they will end up with

They quote a loan to value ratio of 84% which is based on the ‘purchase price or valuation’ of 260k and a borrowing of 220k. This LTV ratio seems high especially for a B&B. At best you would get approximately 70% with High Street banks. Borrowing such a high figure could put pressure on the business so you need to be sure you could service the loan

Note that they say they will lend 84% of purchase price or valuation. They appear to have missed out a standard phrase ‘whichever is the lower’. A valuation will have to be done and a valuer will only give a ‘bricks and mortar’ valuation. Your price will no doubt include an element of goodwill for the business (I’m assuming you’re buying a going concern). The real value of the building may come out lower say, 200k, therefore the maximum finance will be 84% of this i.e. 168k. Do you have the additional deposit? You need to ask whether finance is based on purchase price or bricks and mortar valuation

Is the interest rate fixed or variable in line with Base Rate movements? If fixed then for what term?

Booking fee – is this refundable if finance cannot be found?

Valuation fee – ‘to be advised’. Not acceptable. You should find out first exactly what this will cost. Most valuers work on a sliding scale based on value so an estimate should not be impossible

Arrangement fee paid on completion seems fair

There are a few questions to ask before you proceed and I see from the web site that they have a physical address quoted, which is a good sign. In raising these points I’m not saying that the firm is not genuine, these are just issues I think you should clarify before you go further.

You mention you have two BTL properties with plenty of equity. Have you considered remortgaging them? I don’t know whether the equity would cover the purchase price but it’s another option to consider.

[shamstar]

Rob thank you for that. I will make more enquiries and let you know of the outcome. I am remortgaging one of my properties to raise 50k , i could remortgage the other but am tied in with the abbey till june (value is 260, mort is 142k) so might in june get another 79k or so and find a similarly priced b&b to go for.

:)

[Ian J]

I don't know how relevant it is but when you click on the links provided above you are diverted to a different site at www.commercial-finance-broker.net.

I'm sure that there are enough commercial mortgage brokers looking in here to tell you if that is a good deal though.

[MarkD]

Hi Shamstar,

You are being asked to pay £2,000 in fees which seems very high to me.
If or when you are ready to proceed and would like to pay no more than £500 then PM me and I'll help you out. I won't charge you!

[MarkD]

p.s.

I'm assuming the fees quoted are broker charges & do not inlude any fees the lender would charge...

[MartinC1970]

Hi.

I agree that it would appear to be a very good deal. Interest 1.5% above Base Rate and a fee of less than 1%. I would wait and see how good the offer is by checking any offer letter and/or a facility letter.

I would also express my concerns over the amount that they are willing to advance against the valuation. Also, what would happen if the income were to reduce and there was to be an adverse movement in interest rates?

Overall, you are better off looking at the complete product and associated risks/costs. An HSBC Commercial Mortgage is a flexible, cost effective way of raising finance to purchase or develop business premises and can be tailored to suit your individual business needs. The key features are as follows:

The minimum amount is £25,001. There is no maximum.
The loan can be structured over any period from 2 to 30 years for most properties. Variable rate loans are either calculated as a percentage over Bank Base rate or, for sums over £500,000, can be linked to LIBOR (London Interbank Offer Rate). Fixed rates are available for periods of between 1 and 10 years. For sums over £50,000 a base rate cap can be provided, protecting your repayments from excessive rate changes but leaving scope for repayment reductions if rates fall. Flexible repayments are possible for variable rate loans, including an initial capital repayment holiday for up to two years and up to two deferred payments per year.
Loans of over £150,000 may be linked to your retirement plans via Self Invested Personal Pensions and Small Self Administered Schemes (SIPPs and SSASs).

Interest charges subject to individual negotiation. An arrangement fee of between 0.5% and 1.5% will normally apply. A prepayment fee of 1% will apply for variable rate loans. Interest varies in line with base rate movements. Repayments are reviewed annually.

If you need more information, check out the web site.

Regards.

[max lough]

I am writing with a warning for anyone looking to raise commercial finance.

I am a mortgage broker so should have remembered that commercial finance is not regulated. Exactly what this means has been brought home to be by coming into contact with certain brokers.

I was dealing with a company called Praxis Commercial, no longer trading it seems, and nothing to do with Praxis homeloans, an excellent company. (Clearly an attempt to piggyback the name.)

I paid £1300 to Virtua Finance for an application and a valuation never carried out. I have been promised a refund for over a month, 'cheques have been sent' transfers made' nothing has materialised though!!!

I have actually been verbally abused by personal email, using language I cannot repeat here !!!!!!

I would strongly advise against using Praxiscommercial.com, virtua finance or any company involving Jamie Goldsmith.

Check the link below.

[euphoman]

As a former Bank Business Manager and more recently as an introducer for Commercial Finance to a couple of Commercial Finance Packagers i think it is too good to be true. I'm not aware of any lender providing more that 80% at present and particularly in B&B sector 70% is likely to be maximum.

Generally speaking Packagers will charge an application fee of up to £500 and also a completion fee-between 0.75% to 1.% of loan amount. On top you will have valuation fee (est £750) plus lenders Arrangement fee which as previous poster mentioned could be anything between 1% to 2%.

Interest rate quoted probably not too far out.

As far as the lenders are concerned the ability to service the loan backed up by historic trading accounts,the location of theB&B and future projections will be paramount .Any lender might ask for a Business valuation such as that provided by Pinders and this will increase cost. Valuers are pessimistic at present so this may impact on potential loan amount.

If you want further information from me check out my website or e mail me.

www.wadhambusinessconsultancy.co.uk (http://www.wadhambusinessconsultancy.co.uk)