Buying property using CBILS – Business Mortgage

There is much coverage of the Coronavirus Business Interruption Loan (CBILS), the problem is most of it is focused on the delays and issues with the scheme, rather than how it can be practically used for and how companies can benefit by using it.

There are two areas where the CBILS scheme is under-appreciated, being for trade finance and for purchasing commercial property. Yes, purchasing commercial property.

At a time when commercial mortgages are more difficult to obtain with less active lenders, it may be prudent for those businesses looking to purchase property to consider using the CBIL scheme for a business mortgage.

Business Mortgage – Property

When using the CBIL scheme to purchase a business property then there are a few differences with how the scheme is normally applied. As a summary;

• The 25% of turnover limit is removed
• Lending up to 75% of property value
• Government cover all loan costs and lender set-up fees (including valuation and legal fees) for first 12 months
• There must be a benefit to the business in making the purchase

For many businesses, the scheme will work really well where they are moving from a rented to an owned commercial unit. The loan to value is good at a time when most commercial mortgage lenders are lowering their loan to values. The free valuation and legal fees are not to be sniffed at either.

If you take this and add in that the costs of the borrowing are being paid for you for the next 12 months then the idea of using CBILS to purchase commercial property becomes really attractive.

Let’s look at the criteria.

CBILS Business Mortgage Criteria

As with any piece of lending that is going to run over a term, there needs to be affordability. I’ll come to that in a minute. To get over the first hurdles the business must answer positively to the following questions;

• Has the business been negatively impacted by Covid-19?
• Is there a benefit to the business in buying the target property?

The first point should be pretty simple to answer, in some way almost every business has been negatively impacted. Even those businesses in growth have a negative, whether that be more working capital required or supplier terms changing etc.

The second point is more key. For a business moving from rented to owned commercial property then a business mortgage will doubtless reduce their outgoings, so a benefit exists. You could argue that certainty over future costs or room to expand and employ are also a benefit.

My point being that the CBIL scheme, when used for buying commercial property, is a little gem that too many business owners are unaware of.

We are seeing commercial landlords unable to remortgage, so there is good reason to think now might be the time to buy the unit you currently rent. This could be a great way to achieve that and have it fit nicely into your cashflow.

Any questions give me a bell, I really like this option.

By Dave Farmer