Auction finance for property developers and businesses

The banging of the gavel, the auctioneer’s chant, paddles thrown in the air… the auction room can be an exciting place! Of course, today much of this happens online, but there’s still something exhilarating about finding the perfect property at a discounted rate and outbidding the competition.

In 2023, there was a 33.8% rise in the number of properties available for sale when compared to 2022. Not to mention, in the same year, the sale was completed on 82% of the houses that went to auction.

However, as fun as auctions are, sometimes, once you’ve won that perfect property, you might find you still need a little longer than the typical 28 days to put forward the entire funds.

That’s where auction finance comes in.

What is auction finance?

Auction finance is a type of bridging loan or short-term loan designed to help you fund your property purchase. Obtaining the full funds for a property usually requires more time than the 28 days auction houses typically insist buyers must pay within. Given you can apply for auction finance before stepping foot in the auction house, it’s become a popular solution for property developers who want to remain flexible.

The benefits of auction finance

Auction finance provides lost of great benefits, including:

Flexibility

With auction finance, you can come to an agreement with the specialist lender before you head to the auction house. This provides increased flexibility for property developers and other businesses who may like to go in with an open mind and ready wallet. This flexibility can help you beat out the competition.

Fast delivery

As mentioned, most auction houses insist the full funds are delivered to them within 28 days which can cause a chink in any business plan. Auction finance is designed to work quickly and the funds will usually reach you within 14 days. This fast delivery prevents loss of properties due to delays.

The drawbacks of auction finance

It’s always good to be aware of the potential drawbacks of any financing options. For auction finance, the drawbacks include:

Short repayment terms

Auction finance is a short-term solution designed to help you bridge the gap between the auction house and a mortgage or cash purchase. For that reason, these loans usually have a repayment period of two years or less. To fund your purchase at a later time, you might like to consider a commercial mortgage, semi-residential mortgage, or buy-to-let mortgage, depending on the property.

High interest rates

As a short-term loan, auction finance usually comes with higher interest rates when compared to a traditional commercial mortgage.

Four things you need to know before applying

We want you to feel completely equipped before you hit that apply button so here are four things you might like to know before applying for auction finance.

• Deposit size: You’ll usually need to pay an upfront deposit of between 10% and 35%. In some cases, you may even need to pay a 50% deposit, for example, if the property is uninhabitable in its current state or there are major legal issues surrounding the purchase. If you need help with this upfront payment, talk to your lender or our support team as some lenders let you put up another asset as collateral.

• Property types: Auction finance can be used to buy commercial, semi-commercial, and residential properties. They can also be used to acquire land.

• Credit history: Lenders usually run a credit check against you or your business to determine your likelihood to repay the loan. This can affect the interest rate you are offered. If you’re currently struggling with bad credit, you could try improving your credit score by repaying historic debts with consistent, steady payments, paying bills and loans back on time and diversifying your credit mix.

• Exit strategy: Lenders usually want to see an exit strategy, which means you’ll need to let them know how you plan to repay the loan. Some popular exit strategies include obtaining a mortgage or refurbishing and selling the property.

Find auction finance with Funding Options by Tide

At Funding Options by Tide, we help businesses of all shapes and sizes find property financing, whether that’s auction finance, another type of bridging loan, or a more long-term solution. Just click the link below to get connected with over 120 lenders across the UK.

Click here to find suitable auction finance.

Please note that the information above is not intended to be financial advice. You should seek independent financial advice before making any decisions about your financial future.

It’s important to remember that all loans and credit agreements come with risks. These risks include non-payment and late-payment of the agreed repayment plan, which could affect your business credit score and impact your ability to find future funding. Always read the terms and conditions of every loan or credit agreement before you proceed. Contact us for support if you ever face difficulties making your repayments.

Funding Options, now part of Tide, helps UK firms access business finance, working directly with businesses and their trusted advisors. Funding Options are a credit broker and do not provide loans directly. All finance and quotes are subject to status and income. Applicants must be aged 18 and over and terms and conditions apply. Guarantees and Indemnities may be required. Funding Options can introduce applicants to a number of providers based on the applicants' circumstances and creditworthiness. Funding Options will receive a commission or finder’s fee for effecting such finance introductions.