Corporate finance element – how to get funding for renovations

In the past months, many businesses have pivoted to source new markets and opportunities and owners of office premises are no different. They have modelled several future scenarios for their business and the markets they operate in.

One of those options may be to reconfigure their buildings to meet the anticipated demand for more flexible working environments. This will entail an upfront cost and ongoing maintenance so they may wish to access finance to cover those costs and John Walsham explores the options.

1. Loan finance – if the property is owned then the business can look to borrow against the bricks and mortar value and access relatively cheap finance (2-4% above base rate) on a long term basis up to 20 years.

2. Coronavirus Business Interruption Loan Scheme (CBILS) – If a property company derives more than 50% of its income from commercial activity then they could be eligible for a CBILS loan facility. They could access relatively cheap money (2-4% above base rate) on an unsecured basis over a term up to 10 years. The added benefit is that in the first year there is no interest payable nor capital repayments allowing time for the new venture to be established. Time is short to access CBILS as the scheme closes to applications at the end of November so business owners need to act quickly and should always approach their own lender first. If the owner needs to explore the wider lending marketplace then Kreston Reeves can support the funding request and have access to over 100+ prospective lenders via an online funding platform.

3. Asset finance – many of the items that will be purchased as part of the renovations can be lent against via asset finance. This could include telephone systems, kitchen equipment, CCTV, furniture, computers etc. The asset forms the security for the lender and can be arranged much faster than traditional lending. It will be more expensive than traditional lending but enables the owner to use the assets to generate income from day one. It may be possible to use a CBIL facility for these assets and lending is usually over a maximum of 3 years under CBILS but can be lent for a longer-term on a traditional asset finance deal and linked to the expected useful life of the asset.

4. Bridging finance – the owner can borrow against the value of the property for up to 12 months which will free up funds to finance the renovations and they can look to refinance the facility once the core business is generating income and profits. It can be the most expensive way to borrow but in some circumstances is the favoured option as it can be arranged relatively quickly.

5. Rental income – once the new venture is operational and has a track record of say 6 months then a lender will consider lending against the rental income of the new venture. The main consideration from the lender in assessing the lending application is how many times does the rental income cover the loan repayments.

When considering any borrowing request the owner should their balance sheet and consider where their assets are and how they can leverage against these in the most efficient and cost-effective way. Do not ignore the opportunity to refinance existing borrowing over longer and better terms together with a capital repayment holiday for at least twelve months.

To discuss any of the topics explored in this article, please contact John Walsham.