Commercial mortgage at 100% of sale price to purchase the freehold of a children’s day nursery

Written by Andy Elley

The client: The owner and manager of a successful children’s day nursery approached us looking for finance to purchase the freehold of the property. She has been in the child care sector for over ten years and her business employs 11 people.

The property: A detached Victorian house with large grounds which was originally built in 1860 to house the manager of the water works situated next door. The utility company which leases the building to our client, asked if she was interested in purchasing the freehold. The building is in a residential area of busy town and perfectly located for parents to drop off their children on their way to work.

The finance: In the first instance, our client approached her bank for a mortgage but she was declined because her personal savings and the equity in her home did not meet the 70% LTV the bank required. So, she approached us to help her find a solution.

The solution: We could see from the client’s sole trader accounts that her turnover was £272,000 and profits were in excess of £75,000 per annum.

The going concern of a business is calculated at 2-3 times of the company turnover, this is used to calculate the freehold business value of the property. Using this multiple we could see that the value of the business freehold is in fact £525,000, much more than the asking price.

We approached a lender we know to support the funding of nurseries and presented them with business accounts for the last three years, Ofsted report and the going concern of the business. From this they were able to see that the business would be able to support the repayments on the mortgage and were able to offer 100% of the sale price.

Here are the details:

Property Details

Purchase price: £315,000

Freehold business value: £525,000

Loan amount: £315,000

LTV: 100% (of purchase price)

Rate: Bank Rate + 2.5%

Term: 15 years capital & interest

Borrower: Individual

Lender arrangement fee: 1.5%

Mortgage payment: £2,213 pcm

Original rental payment: £1,041 pcm

Consultant: Andy Elley, 01732 471644