FAQ’s – What Are The Set-Up Costs? – Part 1

This week I’m continuing a series of blogs around what I call FAQ’s – Frequently Asked Questions.

In my years of working with clients, I’ve discovered that the same questions get asked on a regular basis.

So, in this series of blogs, I’m answering some of the most commonly asked questions that I get from clients and prospective clients.

We continue this week with FAQ number 3.

The question is:

• What are the set-up costs?

I’m going to cover set-up costs for commercial finance over two blogs – this week and next week – as this is an important topic and a question that I get asked about regularly.

When it comes to raising business and commercial finance, there are a number of set-up costs which you simply don’t get when raising a residential or buy-to-let mortgage. This is because raising commercial loans and mortgages tends to be more complex with the result that the set-up costs are structured differently and are also higher.

So, let me go through all the costs involved in arranging commercial finance and give you an idea of how much these costs are likely to be.

If you’re raising commercial finance the main costs you can expect are as follows:

• Valuations
• Brokerage fees
• Lenders arrangement fees
• Lenders solicitors’ costs
• Your solicitors costs

Valuation:

If you are acquiring a freehold property, then clearly the lender will require a valuation to be carried out. I always suggest only doing valuation once you have a loan agreed with a lender.

Lenders will then go out to their panel valuers and get two or three quotes for a valuation and you can then decide on which valuer you want to use.

The cost of valuations varies enormously and there are numerous factors that can determine the fee you will be charged.

As a guide, you should expect the cost of a valuation to be in the region of £1.50 – £2.50 per £1000 of property value. If you work on this basis, you won’t go too far wrong. So, for instance, on a property worth £700,000 expect to pay a valuation fee in the region of £1,500. Also bear in mind that VAT will be payable on the valuation fee so the total cost in this example would be £1,800 – i.e. £1,500 + VAT.

Also bear in mind there is usually a minimum valuation fee which is typically in the region of £500 + VAT

Brokerage fees:

Obviously, if you decide to approach a lender directly rather than go through a broker, then you will have no brokerage fees. However, whilst not using a specialist commercial finance broker may seem on the face of it like an attractive option – because of the cost saving – I have seen many clients try and do it themselves and end up with the wrong funding or worse, no funding. So, it can be a false economy.

If you decide to use a broker, fees vary. At Funding Track, we structure our fees in two parts. When we work with a client, we start by having a detailed discussion, what we call our “Deep Dive Evaluation”. It means we have a full and detailed understanding of the clients funding requirements and the client knows exactly how we can help.

The Deep Dive Evaluation is both free and without obligation. If you decide that you then want us to act for you, we charge an Administration and Application Fee to start work on your loan application on a formal basis. This fee is typically in the region of £500 – £1,500 and the amount is determined by deal size and deal complexity.

Our arrangement fee becomes payable only when we have successfully arranged finance and is in the region of 1% – 1.5% of the amount of funding we have arranged. We have a minimum arrangement fee of £1,000.

Next week, I’ll cover the second part of this question and look in more detail at both lenders and solicitors costs.