Deposit for a commercial mortgage

[benjihubbs]

Hi all,

My aunt and I have found a very busy cafe situated in a busy city centre with a good 25 year reputation and good passing trade. It currently turns over around £7000 a week with an annual net profit in the region of £100k, we would absolutely love to move forward with this and makes this our own, however we have a slight hitch, we have no deposit for a commercial mortgage.

From my research mortgage lenders are looking for you to put up around 20% of the total cost of the property, which in our case is £50,000, I have no way of getting that kind of money and neither does my aunt. From looking at the business' books, I can see that the majority of the mortgage would be paid off within about 5-6 years and this business will be a success. The business practically runs itself anyway, so anything done to the business could only increase its success (re-decorating, offering external catering/lunch deliveries etc., opening 7 days instead of 6).

So this is where I need help, is there anything/anywhere out there where I could get around needing this large amount of money for a deposit, I have heard of 100% mortgages, but I assume they are very rare nowadays? Any banks which will lend a larger percentage based on the business' finances?

Any advice will be greatly appreciated!

Ben

 

[tony84]

For a commercial mortgage i think its more like 30% deposit.

There is one or two 100% mortgages on the market for residential properties - however these tend to have caveats (such as a parent acting as guarantor).

Im really sorry to be this blunt but if you have no deposit you have no chance down any conventional route. by no deposit, i mean anything under 25-30%.

Doany of you own a property you can remortgage to free up the cash?

I dont really know much about commercial mortgages, i work with someone who does ive sent him the odd refferal but hes said anything below 30% is a waste of time.

 

[benjihubbs]

hmmm, I feared that would be the case.

Neither of us have any property which could be remortgaged, my aunt rents and I live with parents (who rent).

I did look into getting a personal loan, but I have no credit rating apparently, so they wont touch me and you're also not supposed to take out a loan to finance more credit, dunno if that's true or just a line they were spinning me to put me off doing it?

 

[tony84]

I can only speak for residential mortgages but lenders wouldnt offer you a mortgage if your deposit came from a loan... the only exception to this MIGHT be if your income EASILY affordaded both of them.

Ie £100k mortgage and your combined income was say £50k... however the lenders who would look at that are very few and far between.

 

[businessfunding]

Hi all,

From my research mortgage lenders are looking for you to put up around , I can see that the majority of the mortgage would be paid off within about 5-6 years and this business will be a success. The business practically runs itself anyway, so anything done to the business could only increase its success (re-decorating, offering external catering/lunch deliveries etc., opening 7 days instead of 6).

Ben

This statement on its own would worry me a lot particularly as your post doesn't indiate that you have any experience in this sector.

I'm sorry to be a downer, but there is a lot more to getting going in business than scraping together the funs to 'buy sucess'. You need to taker a big step backwards and undersand the ins and outs of running absiness and of the trade you are going in to.

 

[sabus]

I must admit I was thinking exactly the same thing.
This may sound patronising but I suggest you forget the idea. If its business you want to do look at smaller ventures that you can afford to put some personal cash into.

Do you honestly think its that easy to make money? If so everyone would be doing it. Any lender of any sort wants to see what your personally staking and in this case nothing. Bare bones is you want someone else to take 100% of the risk and you receive 100% of the reward! In business you only make money if you are Personally willing to take a gamble some pay off others dont. The old saying money makes money is very very true. Start small and then grow!

 

[benjihubbs]

Admittedly I have little/ no experience within this sector, however my aunt does. I respect everyones point of view and know that it's coming from experienced people, however the books don't lie. The past 2 years have shown around £100k net with a forecast for this year end being a very similar figure.

I started this thread looking for a solution to a problem, however there obviously aren't any.

 

[AscotMortgages]

Have you thought about approaching a mortgage broker / advisor?

 

[bizloanservices]

As you have seen here the lack of a deposit does make this a non-starter. That said, even if you have the required 30%-40% it still wouldn't guarantee you a deal.

Today the banks are also focused on sector experience - it's people who make or break businesses. The Accounts may not 'lie' but its what the current owners have done to produce that result that counts.

I have seen many previously successful businesses run into the ground by new owners because they didn't have the necessary sector knowledge/experience.

So your lack of deposit would be just one of the challenges you would face in getting finance I'm afraid.

 

[Talay]

It is no bad thing to think that having your own business would fix the problem of not having a decent job, owning a place to live and having some cash in your pocket but you are light years away from buying a £250,000 business.

However, why not get a job there. Learn just why it is that they are so successful and save, save, save.

Now you won't get enough cash saved from working in a cafe but you might use it as a stepping stone to another better paid position, where you could save the money to one day open your own place and save the goodwill this place had built up over the last 25 years.

 

[hotel-man]

If a business is selling for £250k and produces net profits of £100k, it certainly isnt a freehold premises.

In which case, for a leasehold business you're looking at MINIMUM 50% deposit, sector experience and probably some form of security (ie equity in a house) too.

Without the sector experience or security you're probably looking at a 70% deposit.

Move on !!