What is a commercial mortgage?

A commercial mortgage is similar in principle to a residential mortgage, except that it is used to purchase property or to raise equity for business purposes rather than for domestic purposes. As with residential mortgages, the lender

retains the rights to the property until the loan is paid in full.

What would you use a business mortgage for?

The types of property that people can buy using a

Mortgage can be anything from hotels, restaurants, shops and

takeout food to office buildings, factories, warehouses and farms.

Sometimes people can buy the business and the property at the same time.

if the two are intrinsically linked, like a hotel or a restaurant.

When properties are acquired for use as commercial premises, the

The mortgage is known as an owner-occupant commercial mortgage.

Alternatively, a commercial mortgage could be used to refinance.

People may want to unlock capital from their existing business

property to expand or improve its premises or facilities, or to raise

effective for any other business purpose.

There are many other uses for a commercial mortgage, like buying to rent.

mortgages, where people buy property (perhaps residential) as a

investment and lease it, or commercial development mortgages, where

people buy property to develop and sell it for profit.

Why buy a venue instead of renting it?

Buying a commercial mortgage is a big step for your business and

it must be carefully considered before making the commitment.

However, it can be an excellent investment and owning the business.

The premises you occupy can bring many advantages to your business:

In most circumstances, the loan proceeds are not considered

be taxable income and interest payments are tax deductible.

You will have a clear payment plan, with adapted terms and rates

to satisfy your needs. (See below for more details on this.) This means

that you can manage your cash flow more easily.

Mortgage repayments can be cheaper than rent.

Any property purchase is an investment. Your asset could

they appreciate greatly in value, thus increasing their capital.

You have the potential to earn money by subletting. For example,

you may have space on your property that you don’t currently need,

and you could make money off it by renting it out to another company until

you need it to expand your own business.

Why use a business mortgage to raise equity?

If you already own commercial property and need cash for your business

for any reason, unlock the equity in your property by refinancing

or reenlisting is an effective solution. Think of it as a loan that

could be used for any business purpose, not just to expand or

improving your premises. There are many benefits to doing this:

Commercial mortgages can be easier to obtain than commercial loans.

especially for small businesses as the property provides security to

the lender.

Unlike many business loans, which tend to have a short repayment

term, commercial mortgages cover a long period, between 15 and 25

years, depending on the lender and the financial circumstances of your

deal.

In most circumstances, the loan proceeds are not considered

be taxable income and interest payments are tax deductible.

There are two ways you can use a business mortgage to

raise capital for your business:

1. Refinance your current commercial mortgage to include the loan

amount you want to borrow.

2. Release the equity that has accumulated in your current property,

that is, the current value of the property less any outstanding mortgages

or debts linked to it.

What are the costs and payment options for commercial mortgages?

Payment plans tend to be similar to residential mortgages. The main options are fixed-rate or variable-rate amortization mortgages or interest-only / endowment mortgages.

However, unlike residential mortgages, the interest rates for

Commercial mortgages tend to be higher as business loans are perceived.

as higher risk. Rates will vary depending on the circumstances.

of your business, but generally speaking, the higher the risk, the

higher interest rate. For the same reason, repayment terms also tend

be shorter than residential mortgages, usually 15 to 20 years.

You will likely need to collect a deposit as well, as most lenders

will not provide 100% loan-to-value mortgages, that is, they will not provide a

mortgage for the full amount of the purchase and expect a down payment

from you as a form of security (usually between 20% and 30% of the purchase price,

although some lenders accept as little as 5%, but with a higher

interest rate for repayment).

Other expenses to consider are the setup costs involved in organizing a

commercial mortgages, such as legal fees, surveys, and broker fees.

As for the responsibility to pay the mortgage, this depends on

the type of business. If you are a sole trader, the responsibility will be

sleep with you and may also be personally liable in the event of non-compliance

on repayments, which means you could also lose personal assets

like commercial property that is mortgaged. If you are in a

partnership, responsibility and obligation apply to all partners. Yes

is a joint-stock company, the responsibility and liability belong to the

business, although personal security may be required to approve the

mortgage based on the profitability of the business.

How do you get a commercial mortgage?

When applying for a commercial mortgage, you will need to make your

homework and build a strong business case to demonstrate that your company

ability to pay the mortgage. Be prepared to have a

review of your finances, including:

business history of your company: financial statements, earnings

and loss accounts, balance sheets, past and current cash flow, all

certified by an accountant

future projections for your company: long-term business plan,

intended use of property, earning potential, projected cash flow

personal finance: the financial history of yourself and everyone

other key stakeholders in the business, such as creditworthiness and

past earnings

All these factors will determine the degree of perception of the lender

risk when lending you the money, which in turn will determine the term

and the interest rate of the loan that they are willing to give you.

The obvious first step for many people applying for a commercial

mortgage is approaching your bank or commercial lender, with whom

I already have an established relationship. However, for this very reason

you are unlikely to receive competitive treatment.

The best way to obtain a commercial mortgage is to use the services of a

specialized independent mortgage broker, who can help you get a good

package that adapts to your needs, whatever your circumstances. Even if you

Credit is not great, it does not mean you do not qualify for a

commercial mortgage. Have a broker who truly represents you

strengthen your case. They have access to a wide range of lenders and

understand your criteria for granting loans, as well as your specific needs.

Therefore, they can perform a specific search, which increases their chances

of finding a suitable loan. In fact, the broker may even

get several different options from various interested lenders, who

provides the scope to negotiate a fantastic deal for you.

Money is not all you will save. Imagine if you tried to apply for

multiple lenders yourself – think about the time required to complete all the

applications, and time wasted applying to inappropriate lenders.

The independent advice and specialist knowledge that a broker provides.

they are invaluable.