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Commercial Remortgages

Looking to refinance a commercial mortgage or a business loan? Get the right advice here.

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Pete Mugleston

Author: Pete Mugleston - Mortgage Advisor, MD

Updated: June 8, 2022

We hear from countless customers who want to find out more about refinancing a commercial mortgage or loan.

Many want to know what their options are, while others are ready to get the ball rolling and wish to learn what rates they’d qualify for and how to make an application.

You’ll find the answers to all of those questions and more in this guide.

Can you refinance a commercial property?

Yes. Commercial mortgage refinancing works in much the same as residential remortgaging, in the sense that it involves switching from one mortgage product to another using the same property as security. You can remortgage with another lender or renegotiate your deal with your existing provider, although this is sometimes referred to as a product transfer.

While it’s usually more straightforward to refinance a business mortgage than apply for one from scratch, if you’re switching to a new lender, they will still expect you to pass their affordability and eligibility checks before rubber-stamping the agreement.

Why remortgage a commercial property?

There are a number of reasons why a business or a business owner would want to refinance a commercial property mortgage, including…

To switch to a better deal with a new provider

Most commercial mortgages in the UK were variable rate at one point, but fixed rate deals are now commonplace.

If you signed up for a fixed rate mortgage and are about to be switched over to the lender’s standard variable rate, it usually pays to refinance your business property loan. You could always open talks with your current lender, but that means you will only have access to their deals, and there might be more favourable rates available elsewhere.

Of course, you don’t need to be on a fixed rate commercial mortgage to switch to a better deal with a new lender, but be sure to check whether you will be liable for any exit fees with your existing provider.

To release equity from your commercial property

If you’ve built up equity during the course of your mortgage term, refinancing your commercial property loan would enable you to unlock this capital. Many businesses and business owners do this to invest the funds in another property or pay off their firm’s debts.

To borrow against the increased value of a commercial property

If the commercial premises you own has increased in value during the course of your mortgage term, it may be possible to borrow against its new valuation. Customers often do this to borrow money for building renovation and expansion.

To switch from owner-occupier to commercial investment

Some borrowers choose to refinance commercial property loans to switch the mortgage type from an owner-occupier agreement to a commercial investment deal. Perhaps your company has outgrown its business premises and is moving to a new one. Rather than sell the original premises, you might want to let it to another firm to generate rental income.

In this scenario, you would need to refinance your commercial property loan and switch from an owner-occupier mortgage to commercial investment.

The lender will want to see that the forecast rental income is high enough to cover the mortgage payments, and there’s a chance you will end up on higher rates than before, since commercial investment is higher risk than owner-occupier, in the eye of some providers.

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How much can I borrow if I remortgage my business premises?

When switching to a new commercial mortgage product, the lender will want to be confident that the loan is serviceable and affordable.

There’s no hard and fast rule on the amount commercial lenders are willing to offer, since mortgages in this sector are usually set up on a bespoke basis, with the borrower’s need and circumstances in mind.

When you apply to remortgage a business property, most commercial lenders will calculate whether you and/or your business can afford the product you’re applying for based on earnings before interest, tax, depreciation and amortisation (EBITDA).

They will want to see that the company is profitable enough to keep up with the mortgage payments.

If your firm’s adjusted net profit is not adequate to cover the mortgage, some lenders will allow borrowers to declare other legal income they have and feed that information into their commercial mortgage refinance calculator, along with the EBITDA numbers.

What rates can I expect for a commercial property refinance deal?

If your goal is to refinance a commercial building, no doubt you’ll want to end up with the best rates. Commercial lenders decide which rates to offer on a case-by-case basis and the way to make sure you end up with favourable ones is by seeking advice from a broker with access to the entire market. That way, all of the best deals you qualify for will be in reach.

How to qualify for the best commercial remortgage rates

Commercial lenders tend to offer their best rates to borrowers they consider low risk, and there are a number of eligibility factors they will take on board when assessing this, such as…

The loan to value ratio

deposit is often unnecessary for commercial property refinancing as the equity you hold will suffice (assuming you hold enough).

The minimum loan to value (LTV) ratio you’re likely to find for a commercial mortgage in the UK is 75%, although some lenders won’t go higher than 60%. The more equity you hold in your property, the lower the level of risk to the lender as lower LTV deals are the most attractive to them.

In other words, you may end up with more favourable rates if you refinance your business mortgage with substantial equity on your side.

It may be possible to remortgage a business mortgage with higher LTV than 75% by putting up extra security, such as another property you own and hold equity in.

Credit history

Bad credit can be an issue when refinancing commercial property loans, simply because some lenders prefer to deal with businesses and individuals that have clean credit, so if you or your business have developed credit issues since you took out your original mortgage, you might end up on unfavourable rates or be turned away when it comes to refinancing.

That said, there are specialist commercial mortgage providers who take a flexible approach to bad credit, taking the age and severity of the credit issue into account.

There are also ways you can offset some of the risk posed by your adverse credit, such as putting up extra security or offering personal guarantees from the company directors.

Trading history

The amount of time your company has been trading can also have an impact on commercial mortgage refinance interest rates as some lenders prefer borrowers with experience in the industry in question. If you’re switching to a new provider, your choice of lenders might be restricted by how many years you’ve been trading in that sector for.

However, with the help of a whole-of-market broker it may still be possible to find a favourable deal even if your business has only been trading a couple of years. There are specialist lenders who will offer mortgages to businesses with no trading history at all, under the right circumstances. Make an enquiry to speak with an advisor today.

The business type

If your business has a strong track record in its industry, the lender is more likely to consider the investment viable and therefore offer favourable rates. Some industries, however, are riskier than others and might require a specialist lender.

This will almost certainly be the case for niche sectors such as agriculture and charity organisations. In these scenarios, speaking to a specialist advisor is essential as fewer lenders to choose from means it’s more difficult finding the best deal.

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Can I refinance my business?

Yes, it may be possible, and this is different from remortgaging.

Business refinance definition

We’ll start with the meaning of the term ‘business refinance’. This would usually refer to a refinance of your business assets to provide an injection of capital, or refinancing your company’s debt to consolidate it and make the repayments more manageable.

Asset refinancing

Asset refinancing may be available on valuable inventory the company owns in full, such as vehicles and equipment, and not those that are subject to existing financial arrangements.

It may be possible to borrow against the equity you and/or your company holds in these assets and free up working capital. The amount you borrow will be secured against the asset and paid off over an agreed period, plus interest – similar to how a mortgage works.

Asset refinancing is swift to arrange and may be possible to arrange in a matter of days, subject to a thorough valuation.

How to refinance business debt

Many businesses finance themselves through taking on debt, whether that’s to invest in equipment or cover day-to-day operations. Consolidating and refinancing this debt can potentially pay off, as it can reduce the overall cost and improve profitability.

The best way to refinance business debt is to start off by consulting with a specialist broker. They can help you determine whether there are gains to be made by consolidating your company debts and connect you with the right lender based on your business needs.

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Is it possible to refinance business loans?

Yes – a business loan is merely a form of commercial debt and they can be refinanced in the same way as you and your company’s other financial commitments.

Business loans are usually offered on an unsecured basis and some lenders cap them at £25,000, while others go higher. There are similarities with commercial mortgages, in the sense that the debt is paid off over an agreed period of time, with the borrower also being charged interest.

You would refinance a commercial loan for some of the same reasons that you would remortgage, namely that lower rates and better terms might be available.

How to refinance a commercial loan

Refinancing a business loan is a case of finding the right lender and meeting their eligibility requirements.

Most business loan providers assess borrowers based on the following…

  • Credit rating: A specialist lender may be needed if you/your business has bad credit, to make sure you end up with the best commercial loan refinance rates.
  • Trading history: Some lenders will expect you/your business to have been trading for at least two years, but a specialist provider might be happy with less.
  • Proof of income: The lender will need to see that the business is profitable enough to cover the loan payments. The more confident they are of this, the more likely they are to offer their best business loan refinance rates.
  • Business plan: Some lenders may ask to see a business plan that shows your company’s estimated growth going forward.
  • Loan statements: Some lenders will want to see copies of your loan statements showing the repayments you’ve made over the last six months.

If you’re hoping to refinance your business loan(s), having whole-of-market access is also important so you can find the lender whose eligibility requirements are the best fit for your profile – make an enquiry and the commercial mortgage brokers we work with search the entire market for you.

Should I refinance my business loan?

The answer to this question will come down to a number of factors related to you, your company and your business needs. We’ve already outlined the potential benefits of refinancing a commercial loan, but there are risks you should be aware of too.

For example, if you’re business has developed a low credit score since you originally took out the loan, it is possible that you will end up with less favourable rates post-refinancing.

It might also be the case that the commercial loan agreement you’re currently in comes with high early repayment fees, in which case the overall cost of refinancing might not be beneficial.

If you’re concerned about any of the potential risks associated, first of all, don’t panic. The experts we work with are on hand to guide you through the process, help you weigh up and risks and discuss potential alternatives with you.

Should I get a business loan or remortgage?

If the reason you’re remortgaging is to borrow more, taking out a business loan could be a potential alternative. Which of the two you should choose depends on several factors.

Firstly, you should consider whether a borrower in your circumstances will qualify for superior interest rates from a remortgage lender or a business loan provider. You should also consider the overall cost of both, factoring in all of the additional costs. The advisors we work with can help you weigh this up and connect you with the right lender.

If you’ve had problems with a remortgage on a commercial property, i.e. turned down for one or offered unfavourable rates, a business loan could provide an alternative.

Small business refinancing

The rules on refinancing are usually no different for small businesses. If your small business is looking to refinance a mortgage, the rates, loan to value ratio and affordability criteria are usually exactly the same as for larger operations. For more information about small business refinance rates and criteria, make an enquiry to speak with an expert broker.

Small business loan refinancing

Small business refinance rates and criteria are also the same as for larger operations when it comes to loan refinancing and debt refinancing. For more information make an enquiry to speak with a whole-of-market broker over the phone today.

Speak to an expert on commercial mortgage and loan refinancing

If you have questions and want to speak to an expert for the right advice, call Online Mortgage Advisor today on 0808 189 2301 or make an enquiry online.

Then sit back and let us do all the hard work in finding the broker with the right expertise for your circumstances. We don’t charge a fee and there’s absolutely no obligation or marks on your credit rating.

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We know everyone's circumstances are different, that's why we work with mortgage brokers who are experts in Commercial Mortgages.

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About the author

Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.

Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!

Read more about Pete

Pete Mugleston

Mortgage Advisor, MD

FCA disclaimer

*Based on our research, the content contained in this article is accurate as of the most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs.

Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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