In the current financial climate, more and more businesses are seeing the importance of re-structuring their finances to save money. Commercial mortgages can be tricky and have a wide range of different criteria, so it’s usually best to consult an expert for advice.
The advisers we work have the experience and contacts in the industry to make things happen, often with access to deals other brokers just don’t have, and can find the finance that suits you and your business best.
Commercial mortgages and commercial loans
Just as with any loan in the modern market, Commercial loans are subject to certain criteria that a borrower must meet. Either an individual sole trader, a partnership or a ltd company can qualify, so long as the lender is happy they’re creditworthy.
Commercial mortgage serviceability – The loan must be serviceable which means that the projected income from the business is reasonable and is high enough to cover the cost of the loan.
Affordability – Similar principle to serviceability, if the investment/business the loan is supporting is not covered by itself, then other incomes can be taken into account to support the borrowing.
Credit score – The business must have a strong enough credit profile and reach the pass mark for each particular lender.
Rate – This depends on the type of borrowing you’re looking for. Fixed rates can be cheaper on commercial deals, depending on tie in periods etc.
Security – Most commercial loans will require some sort of security. This may be a property or other asset, valued by the lender, to be enough to repay the loan should the borrower stop making payments.
Deposit/Equity – Loan to values can be different lender to lender, so the amount of equity you’ll need will vary depending on you’re situation.
How do I get a commercial mortgage?
Just as with any loan in the modern market, Commercial loans are subject to certain criteria that a borrower must meet. Either an individual sole trader, a partnership or a ltd company can qualify, so long as the lender is happy they’re creditworthy. In a nut shell, a lender will base its decision on the ability of your business to make the repayments. They look at profits and performance past, present, and into the future, to asses whether the loan you’ll be borrowing will be serviceable long term.
If the investment/business yield doesn’t cover the loan repayments sufficiently, then other incomes may be taken into account to support the borrowing. For example, a business taking a mortgage on a new commercial property may be able to use income from other properties to support the loan if the income from that property isn’t sufficient.
The business must have a strong enough credit profile / credit history and reach the pass mark for each particular lender, in order to borrow anything. Depending on the score, the risk changes which often changes the rate of borrowing – generally, a higher score = a better rate.
Often, if you have only been trading as a business for a short time, or are a startup, the score doesn’t exist and so a different type of financial assessment is required, and personal guarantees/ additional security may be necessary.
Most lenders will assess your business before quoting an interest rate, and often the type and prospects of the business will dictate what rate you’ll get. Typically, a more risky business sector such as restaurants will come with a higher rate or require further evidence of success or additional security. Often, You’ll need to provide a detailed business plan demonstrating how you’ll afford repayments going forward. In contrast to many residential mortgages, commercial Fixed rates can be cheaper than variable, if you tie yourself in for a specified period.
Please be aware our commercial mortgages section doesn’t include rate information because in most cases rates are determined on an individual basis based on the strength of your proposition. To assess the rate you’re likely to pay, please call us and one of the advisers we work with will chat through your proposition to target the right choice of commercial mortgage for you.
A valuation of the business or property (or both) will usually be necessary. If the lender is to full asses the risk they will need to know the value of your business and viability of future income, as well as any business assets such as property or machinery etc. The costs of valuations tends to be far higher than for residential property, but depending on the type of valuation and type/size of the property the costs can vary.
Most commercial loans will require some sort of security. This may be a property or other asset, valued by the lender, to be enough to repay the loan should the borrower stop making payments. Lenders generally require a deposit of around 20%-40% of the total value – loan to values can be different lender to lender, so the amount of equity you’ll need will vary depending on you’re situation.
In most situations, you may be able to have a mortgage term for one year, up to 40 years, so long as its deemed affordable and viable.
You may be able to apply for the loan on an interest only basis for a period, You will usually have the choice between a variable, capped or fixed-interest rate of interest, often with the option to change your selection during the mortgage term.
Arrangement fees, lending fees and associated borrowing costs usually apply, and in most cases can be added to the loan. Depending on the amount you are looking to borrow and the risk to the lender, these can vary. Early repayment charges may also apply if you repay all or part of the mortgage before the expiry of the fixed term.
Types of commercial mortgages
Generally, commercial mortgages fit into 2 categories:
(also known as owner-occupier mortgage) If you are looking for a mortgage to purchase premises for your business you will need a business mortgage or owner-occupier mortgage. If you already own your business premises and are looking to refinance the property you will need a business remortgage (or owner-occupier remortgage).
Commercial investment mortgage
If you are looking to invest in non-residential property to rent out to other businesses you will need a commercial investment mortgage. If you already own a commercial property for investment purposes and are looking to refinance it, you will need a commercial investment remortgage.
It’s possible to obtain the following types of commercial mortgage…
Leisure property mortgages including:
- Mortgages for restaurants
- Mortgages for pubs
- Mortgages for cafes
- Mortgages for bars
- Mortgages for hotels
- Mortgages for B&Bs
- Mortgages for guesthouses
- Mortgages for golf clubs
- Mortgages for nightclubs
- Mortgages for casinos
- Mortgages for healthclubs
- Mortgages for spas
- Mortgages for sports and leisure facilities
Semi commercial mortgages including:
- Mortgages for shops with flats above
- Mortgages for offices with flats above
- Mortgages for hotels with owners’ accommodation
Retail commercial property investment including:
- Retail units
- Retail parks
Office property mortgages including:
- Mortgages for offices blocks
- Mortgages for offices above shops
Industrial property mortgages including:
- Mortgages for light industrial units
- Mortgages for industrial parks
- Mortgages for warehouses
- Mortgages for factories
- Mortgages for storage facilities
Care home mortgages including:
- Mortgages for nursing homes
- Mortgages for rest homes for the elderly
- Mortgages for hospices
- Mortgages for convalescent homes
Professional property mortgages
- Mortgages for vetinary surgeries
- Mortgages for doctors’ surgeries
- Mortgages for chambers
- Mortgages for private schools
- Mortgages for childcare nurseries
- Mortgages for farms
- Mortgages for farm buildings
- Mortgages for farm land
Whether buying commercial property for investment or trading purposes, the list of property types is endless. For more specific help and to talk through the commercial mortgage options, call today and we’ll put you in touch with the experts.