What is Light Industrial Finance?
Light industrial finance provides tailored funding solutions for properties used for manufacturing, warehousing, or small-scale production. If you’re looking to buy, develop, or refurbish industrial units, this type of financing can make your property investment more manageable.
Now, don’t be put off by the term! It’s a way to describe the specific mortgages and loans available to businesses or investors interested in light industrial spaces. In today’s blog, I’ll explain the critical types of finance available, why it’s worth considering, and how this flexible financing can empower you to find the best deal for your needs.
Small urban warehousing is a fantastic investment, especially for those compact sites located within towns and cities. Companies like Amazon rely on them as part of a strategic distribution network: large warehouses positioned outside the city supply goods to smaller, local facilities that are easily accessible by smaller vehicles. This setup allows for faster, more efficient deliveries directly to customers in high-density areas, making these smaller warehouses a valuable asset in last-mile delivery strategies.
Why Consider Light Industrial Properties?
Light industrial properties can be a wise investment for several reasons. These spaces are incredibly versatile, making them attractive to many tenants, from logistics firms to small manufacturers. In recent years, the demand for these properties has surged, driven by the rise in e-commerce and the need for distribution hubs and warehouse facilities.
Key Benefits of Light Industrial Property Investments
- Strong Demand: The logistics and warehousing sectors continue expanding, driving the demand for suitable spaces.
- Stable Income: Industrial tenants tend to sign long-term leases, offering a reliable income stream that can make you feel secure about your investment.
- Versatility: These spaces are adaptable to various industries, which can lower vacancy rates and ensure steady demand, giving you reasons to be optimistic about your investment.
Types of Light Industrial Finance Available
Let’s examine the different financing options for light industrial properties. You may prefer a standard mortgage, development finance, or even a short-term bridging loan, depending on your circumstances.
Commercial Mortgages
A commercial mortgage is the most straightforward way to finance a light industrial property. Like residential mortgages, commercial ones are secured against the property. Terms usually run between 15 to 25 years, and loan-to-value ratios (LTV) can go up to 80%, depending on the lender and your business profile.
Bridging Loans
If you need short-term finance to secure a property quickly, a bridging loan could be the answer. These are ideal for purchasing a property fast while you arrange long-term funding, but beware—they carry higher interest rates and should only be used as a stopgap
Property Development Finance
Development finance is available for developing or refurbishing a light industrial space. This option offers loans covering up to 70% of the project’s costs, making it ideal for turning a run-down space into a valuable asset.
Specialist Loans for Industrial Units
Some lenders offer tailored finance options for light industrial units designed to provide flexibility with repayment terms and LTV ratios. This type of loan is perfect for businesses with unique needs or those facing challenges with traditional mortgages
How to Secure Light Industrial Finance
Before jumping into the application process, it’s essential to be prepared. Here’s what lenders typically look for:
Financial Health of the Business
Lenders will assess your business’s financial situation, reviewing your accounts and future revenue projections. They will look at your business’s profitability, cash flow, and debt levels to determine your ability to repay the loan. The stronger your business performance, the better your loan terms will likely secure.
Loan-to-Value Ratio (LTV)
The loan-to-value ratio (LTV) is critical in light industrial finance. It indicates how much of the property’s value you can borrow. LTV ratios can range from 50% to 80% for light industrial properties, depending on your business’s financial standing. A higher LTV ratio means you can borrow more, but it also means you’ll have less equity in the property, which can affect your loan terms and interest rates.
Property Valuation
Lenders will also conduct a property valuation to ensure a sound investment. Property valuation determines the property’s worth, which is crucial for setting the loan amount and interest rates. For development finance, they may look at the property’s projected value after completion, which can affect the amount you can borrow.
Finding the Right Lender
Plenty of lenders offer light industrial finance, but choosing the right one depends on your needs. Some key considerations include:
- Interest Rates: Look for competitive rates, but understand whether they’re fixed or variable.
- Loan Terms: Consider the length of the loan—longer terms typically offer lower monthly repayments but could cost more in interest over time.
- Flexibility: Some loans offer interest-only repayment options or allow you to borrow 100% of the property value
FAQ About Light Industrial Finance
What is light industrial finance?
Light industrial finance refers to the loans and mortgages available for purchasing, developing, or refurbishing properties like warehouses, distribution centres, or small-scale manufacturing units.
How much can I borrow for a light industrial property?
You can typically borrow up to 80% of the property’s value, though some specialist lenders may offer higher amounts depending on your financial circumstances and the property’s condition
Are there specific loans for industrial units?
Yes, several lenders offer loans tailored specifically to light industrial units. These loans provide flexibility, with options like interest-only repayments or 100% financing, but are subject to utilising a secondary security.
Can The Mortgage Blog help with light industrial finance?
Absolutely! The Mortgage Blog connects you with a network of specialized lenders, ensuring you get the best financing options for your light industrial property investment.
Light industrial finance opens doors to profitable investments in a thriving sector. The right financing is critical whether you’re looking to buy a property outright or develop a new industrial space. Explore all your options and find a lender that aligns with your business needs for the best results.
For more details and tailored advice on how we can assist you with securing finance for your investment goals, we encourage you to contact our knowledgeable team. Simply call our office at 0333 335 6595 or message us to speak with a member of our dedicated commercial team.
