Raising capital

makeandcreate

I have a meeting arranged with BOI next week re a commercial mortgage but I am not sure if it is the best way to finance for what I want.
Any ideas on other forms of finance, ideally want something that can be paid off early or in a time frame of approx 5 years.
Looking for 40 thousand euro as I will be putting down a large deposit. I have a house with no mortgage that I can secure the loan on, and I may next year sell the house which would leave me in the position to pay off the loan then.
Is a mortgage my best option or should I just look for a shorter term loan?
Thanks

pedronomix

The bank will probably decide on how they want it structured but you can take it that they will demand a first charge that offers them very comfortable security. Beware of any early settlement penalties! The banks are keen to sell term loans at a hefty 8-10% interest rate!

Admor Tony

Normally financial institutions provide commercial mortgages to purchase a commercial property and the term is now usually 7-10 years (it used to be up to 15 years).

It does not seem that you are buying a commercial property if you are aiming to offer your family home as collateral security, so I am not sure that a commercial mortgage will be available to you. It may well be a standard term loan. I would also say that the bank will be very reluctant to accept your home as security, even if title to it is registered in your sole name.

The bank will make their decision to lend based on the capacity of the business to repay (not the value of the security) and if you are looking for alternative finance options, you would probably need to let us know the purpose of the capital you are raising (if you want to divulge openly....).

makeandcreate

Thanks. I am just not sure how to proceed, a 7 year commercial loan sounds good. I have a basic business plan with revenues - the house collateral was more that I could offer them a way to pay back if it didn't work out, plus I have never really had any significant debt - not even credit cards, bar for a few months now and again.
It is a retail and apartment unit, so I was told I would not qualify for a personal mortgage as there was a commercial element.
I know even if I never did anything with the place, I could afford to pay it back - but is it best to chuck everything at it for 2 years and get it paid or go long ball over 7 years?
Off to the BOI tomorrow.

pedroeibar1

As others have pointed out, the first thing any lender will do is look at repayment ability. Next they look at track record, then viability of the project and lastly security.

If you are looking at a mixed-use residential commercial property and you say you have a large deposit, keep your family home/main residence out of it, it adds nothing and is a distraction - offer a first charge on the unit you are buying. So you need to focus on repayment – type of tenants, rental income, cash buffer in case of unoccupancy, cashflow…..cashflow…..

Try to include no early settlement penalty (not easily obtained in my experience on a term loan). I would look at a five - seven year term as you imply a strong cash repayment ability. You do not want to paint yourself into a corner or worry about having to sell your main residence if the cashflow dries up.

Finally, you need to talk to another two banks, never look at just one, and play them off each other.

Admor Tony

As suggested, best to go for a medium term (5-7 years) with no penalties to repay early rather than put yourself under too much early pressure that could result in missed payments. Then you can repay earlier if cash flow permits.

The debt free family home will give the bank good comfort when they assess repayment capacity. Only so you are aware and as you raised it in relation to the new mixed use property, you could raise a mortgage on your home if you had adequate income to support it but there are the obvious pitfalls and risks with this that don't arise with commercial property.

Good luck with the meeting.