Commercial Mortgage Deposits Requirements

Commercial mortgages differ from residential in that there are fewer hard and fast rules when it comes to assessing an application. This means deposit amounts are to some extent negotiable.

In this article we’ll outline the main factors that influence the deposit amount needed, what you can do if you don’t have sufficient cash for it, and how an experienced commercial mortgage broker can use their knowledge and experience to help get you the best deal.

How much deposit do you need for a commercial mortgage?

The amount of deposit you will need is based on several factors but will typically fall somewhere between 20% – 40%.

Depending on circumstances, this could be higher or lower. Ultimately, the amount of deposit needed is determined by how much of a risk the lender perceives the loan to be.

How your circumstances will affect your deposit

Each lender has their own way of working out the level of risk, but usually the factors they consider will include:

• Industry experience: An established business that is performing well will be seen as less risky than a start-up or struggling company and is more likely to secure a loan with a low deposit.
• Profitability: A solid business plan with good results over a number of years and strong forecasts will pose a low risk to mortgage providers. Any doubts over profitability – and subsequently affordability – will mean that, if approved, you may have to pay a hefty deposit.
• Business type: Higher risk businesses such as pubs and clubs will typically require a larger deposit than, say, an office building for a well established business
• Credit file: If there is a history of adverse credit for you or your business, lenders will be wary of lending to you. This will be reflected in fewer potential lenders and a higher deposit amount. In this case, your best route to a commercial mortgage might well be through a specialist provider.
• Loan type: Owner-occupiers who buy a commercial property to work from are typically seen as lower risk than borrowers taking out a commercial investment mortgage. This is because a commercial investment mortgage is similar to a buy to let so your ability to meet your contractual payments is affected not just by your own finances but those of your tenants. It’s rare to get a commercial investment mortgage with a deposit of less than 25%.
• Property type: Non-standard constructions or buildings that require significant renovations will usually require a higher deposit.

Some lenders impose minimum deposit amounts irrespective of the loan to value.

What are the options for borrowers with a low deposit?

It’s possible to get this type of loan with a low deposit, but it can be more complicated.

You can even take out a 100% commercial mortgage with no cash deposit. To do this, you would need to put up other assets as security against the loan. These may be assets owned by the business or by you personally.

If your asset is another property, you won’t need to own it outright but will only be able to borrow against your equity. If you have a mortgage on the asset, the provider will need to approve a second charge.

It might be that you can borrow against other assets such as equipment. But any form of security will be assessed in much the same way.

As commercial lending is quite flexible, it’s not uncommon to use a combination of cash and assets to form a deposit. Typically, with a low deposit your pool of lenders will be smaller as you will be considered higher risk. This can result in higher rates in some cases.

Options for funding your deposit

The most straightforward deposit method is to put down cash. But most lenders appreciate this is not always possible and will consider other ways of funding it, including:

• Working capital
• External investment
• Bridging finance (if you intend to sell the property)
• Commercial finance
• Any combination of the above

Other options may be available too – such as gifted deposits –  so it’s worth discussing your finances in full with your broker. They may be able to identify a creative way of maximising your deposit amount to ensure you get the best deal.

Lenders might want to check the source of deposit before agreeing to a loan.

How a broker can help you get the most from your deposit

Whether you have no cash deposit or a large amount of money to put down, negotiation over your deal can save you thousands over the term of your loan.

But successful negotiations require the kind of insider knowledge most borrowers don’t have.

A whole of market broker, like those we work with, will quickly identify the providers most likely to lend to someone in your position based on appetite to risk. They can then act as an advocate for you in negotiating the best deal according to the amount of deposit you have to put down.

If you get in touch we can arrange for a specialist to contact you directly and discuss further.

Get matched with an expert commercial mortgage broker

Due to the negotiable nature of commercial mortgages, it is difficult to carry out your own research and get a definitive answer as to whether you will be approved with a particular lender, how much you will be able to borrow and what size of deposit you will need.

This is where a broker specialising in commercial mortgages is invaluable. Whatever your situation, the chances are they’ve seen it before and know the best route to take, whether that’s by approaching a certain lender or finding a way to increase your deposit.

Our broker matching service will assess your circumstances and then pair you up with the right broker based on their experience and network of contacts.

To get matched with your ideal broker, call today on 0808 189 2301 or enquire online to arrange a no-obligation chat.