What Is A Commercial Mortgage?

An example of a commercial mortgage is, a property used for a business purpose with a loan secured against it. A loan secured on your place of residence is not a commercial mortgage.

This type of mortgage is for businesses that wish to borrow more than £25,000. The lender grants money to the business owner, secured against the commercial property. 

You can buy a new property with a commercial mortgage. You can also refinance an existing property to raise money. 

If you want to expand your business or develop the property a commercial mortgage may be required. Commercial mortgages are often long-term loans that last up to 25 years. Commercial mortgages offer benefits such as allowing business owners to purchase a property which can be cheaper than renting. A commercial mortgage can also be used to consolidate debt, or raise capital. Capital can then be used for almost any purpose, such as buying additional property, purchase new equipment, or invest in the business.

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How Can I Get a Commercial Mortgage?

To apply for a commercial mortgage, it is likely you will need to complete an Assets and Liabilities form for the lender. The lender will assess your financial position.

You will need to provide the lender with information on your business and personal finances. For example, bank statements for the last 3 months, accounting figures over the past 3 years. Additionally, evidence of address including lease and/or tenancy agreements, and possibly financial projections for the future. A mortgage broker can help you to understand, and collate the information. 

Next a lender will value the property. The property valuation will determine the amount you can borrow. This is because commercial mortgages are usually based on a percentage of the property value. 

The cost of a commercial valuation is dependent on the size and value of the property but starts at around £1,000.

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How Much Deposit is Required For a Commercial Mortgage?

The deposit required for a commercial mortgage can be much higher compare to a residential mortgage. The amount of deposit required depends on the specifics of your business.  The standard deposit required by most lenders is between 30% and 40%. The lender will assess the amount of risk involved based upon your business history, and earnings, and credit rating.

Some lenders may offer you a commercial mortgage with a smaller deposit. In these cases, the interest rates may be higher, or the lender may request additional security on the loan, such as another building. This building will be subject to repossession if you are unable to pay back the commercial mortgage payments.

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How Much Can I Borrow with a Commercial Mortgage?

The amount you can borrow depends on whether it is an owner-occupied property, or an investment property.

Owner-occupied Commercial Property

An owner-occupied commercial property is one where you run your own business from. The amount you can borrow for a commercial mortgage is primarily dependent on the lender, the turnover of your business, and any existing commitments. The lender is will assess your business and give you a decision in principle based on your specific situation.

Investment Commercial Property

An investment commercial property is one bought as an investment, for income or capital growth. The amount you can borrow on an investment basis will be determined by the investment return. Therefore, the lender will assess the quality and detail of the tenancy lease.

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Some lenders will use a commercial mortgage calculator to determine how much you can borrow, but this is quite rare. As such we prefer to review each application on a case-by-case basis to ensure we are considering your needs and the needs of your business. A calculator cannot accurately compute most commercial mortgages. The mortgage lenders decision will be based on the strength of the business that operates within the property. A mortgage calculator cannot assess this. This highlights the importance of using a mortgage broker who can present the case correctly to the mortgage lender. 

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Can I get a Commercial Mortgage with Bad Credit?

It is possible to get a commercial mortgage, even if you have a bad credit rating. It will depend on the lender you are working with, and you may struggle to find a lender who will be willing to issue you with a commercial mortgage if your credit rating is very poor. However, you can find lenders out there who are willing to help. They may however charge higher rates or cap the amount you can borrow to try and mitigate the risk.


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Where Can I Get a Commercial Mortgage?

Several high street lenders offer commercial mortgages such as Lloyds, TSB and Barclays. There are also a number of more specialist mortgage lenders. We have an in-depth knowledge of all of the lenders who offer commercial mortgages. Initially, we will assess your circumstances and following this recommend the cheapest lender which is suited to your needs. Most lenders will offer a mortgage with a maximum LTV (Loan-to-Value) rate of 75%. The interest rate will depend on the current criteria and specifications of your business.

Should I Use a Commercial Mortgage Broker?

Commercial Mortgage brokers such as ourselves are experts in our field. We are well versed in the complexities surrounding commercial mortgages, and will know exactly which lenders are willing to support you. Commercial mortgage brokers not only provide excellent advice, but they can assist you with finding the best interest rates which could save £1,000’s in interest payments. 

The process for applying for a commercial mortgage can be complex and difficult to navigate, particularly if it is your first time applying. A mortgage broker will guide you through this process from start to finish and give you peace of mind knowing that you are getting the best deal available to you.

To conclude, a commercial mortgage is a great way to open up funding for your business. You can repay the loan over a term of 10 to 25 years. A commercial mortgage broker can source you a deal that works for you and your business needs.

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