<h2>Can I use an interest only commercial mortgage to buy a business premises?<\/h2>\nWe receive lots of enquiries asking whether interest only commercial mortgages can be used to either buy a business or for renovations and refinancing purposes by existing businesses.\n\nThe short answer is \u2018yes\u2019.\n\nA <a href="https:\/\/www.onlinemortgageadvisor.co.uk\/commercial-mortgages\/" target="_blank" rel="noreferrer noopener" aria-label=" (opens in a new tab)">commercial mortgage<\/a> can be arranged on both an interest only and capital and repayment basis.\n\nIn this article we will look at some of the key benefits and drawbacks of using this type of mortgage for your business funding requirements.\n<ul>\n \t<li><a href="#work">How does an interest only commercial mortgage work?<\/a>\n<ul>\n \t<li><a href="#benefits">What are the benefits of an IO commercial mortgages?\u00a0<\/a><\/li>\n \t<li><a href="#drawbacks">What are the drawbacks?<\/a><\/li>\n<\/ul>\n<\/li>\n \t<li><a href="#renovation">Can I use an interest only mortgage to buy commercial property that requires renovation?<\/a><\/li>\n \t<li><a href="#criteria">What is the eligibility criteria for interest only commercial mortgages?<\/a><\/li>\n \t<li><a href="#best">How can I secure the best interest only commercial mortgage rates?\u00a0<\/a><\/li>\n \t<li><a href="#expert">Speak to an expert on interest only commercial mortgages<\/a><\/li>\n<\/ul>\nOnce you\u2019ve looked through the information below, make an enquiry and we can arrange for a <a href="https:\/\/www.onlinemortgageadvisor.co.uk\/commercial-mortgages\/commercial-mortgage-broker\/">commercial mortgage broker<\/a> we work with to contact you and discuss further.\n\n[feefo-banner]\n<h2 id="work">How does an interest only commercial mortgage work?<\/h2>\nAn interest only commercial mortgage works exactly the same as its <a href="https:\/\/www.onlinemortgageadvisor.co.uk\/interest-only-mortgages\/" target="_blank" rel="noreferrer noopener" aria-label=" (opens in a new tab)">residential equivalent<\/a>. The only difference is that it would be used to secure funding for a business rather than for a home you are planning to live in or rent out. <strong>\u00a0<\/strong>\n\nWith an interest only mortgage the capital and interest elements of the loan are kept separate and your lender will only collect your interest payments on a regular basis. The capital element needs to be catered for through an acceptable repayment vehicle that will cover this amount and repay it in full at the end of the term (or before).\n<h3 id="benefits">What are the benefits of an interest only repayment mortgage?<\/h3>\nSome of the key advantages for a business wishing to use an interest only mortgage are outlined below:\n<h4>Low repayments<\/h4>\nAn obvious benefit for both business and residential mortgages of this type. As you\u2019re only paying the interest element your outlay will be lower. From a business perspective this will help your cash flow position allowing for more to be invested into your commercial activity.\n<h4>More flexibility to repay<\/h4>\nIf your commercial activity is such that you can generate large amounts of money during random periods then an interest only commercial mortgage could give you greater flexibility to repay your debt in full earlier than planned.\n\nGenerally, capital and repayment mortgages will only allow you to repay up to certain amounts over and above your regular repayments (say, 10% per annum) which, in the long run, could cost you more in interest.\n<h4>Commercial investment property<\/h4>\nIf your main commercial activity involves buying business property to rent out then commercial mortgages set up on an interest only basis may be better suited for your needs. Lower mortgage payments mean you can better maximise the profits from the rental income generated from your portfolio.\n\nIn addition, your property portfolio could be used as an appropriate repayment vehicle to cover the capital element with the aim that any growth in value will adequately cover the amount you need.\n<h3 id="drawbacks">What are the potential drawbacks?<\/h3>\nThe main disadvantage is that some borrowers\/businesses struggle to pay off the loan amount at the end of the term.\n\nThis is the main drawback of an interest only commercial mortgage and it\u2019s quite a big one. You need to be consistently reviewing the repayment vehicle you have selected for the capital element of your loan and that it is on track to cover this amount otherwise you run the risk of being unable to settle the debt.\n\nMany businesses may neglect this part of their mortgage commitment which could result in further refinancing costs or, worst case, a lender commencing repossession proceedings.\n\nThere isn\u2019t a definite \u2018best choice\u2019 for a business to choose either an interest only or capital and repayment mortgage. It\u2019s important you seek advice about all the finance options available to your specific business needs before proceeding.\n<h2 id="renovation">Can I use an interest only mortgage to buy commercial property that requires renovation?<\/h2>\nYes, that\u2019s certainly a possibility. In fact, many businesses opt for an interest only commercial mortgage for the redevelopment of their premises as this type of lending allows them to keep their regular costs at a minimum whilst putting their available liquidity towards the renovation costs.\n\nBusiness property can appreciate in value following redevelopment in just the same manner residential property can, therefore, using your commercial premises as the repayment vehicle would be a good option for this purpose, if you intend to sell it at some stage after the renovations are complete.\n<h2 id="criteria">What is the eligibility criteria for interest only commercial mortgages?<\/h2>\nEach lender uses their own eligibility criteria when assessing a mortgage application. For businesses, lenders will review a request on a case-by-case basis due to the nature of each commercial activity and the factors involved.\n\nGenerally, a lender will look very closely at the following areas:\n<ul>\n \t<li><a href="#commercial-affordability">Affordability<\/a><\/li>\n \t<li><a href="#viability-of-business">Viability of the business<\/a><\/li>\n \t<li><a href="#deposit-commercial">Deposit<\/a><\/li>\n \t<li><a href="#credit-rating">Credit rating<\/a><\/li>\n \t<li><a href="#repayment-vehicle">Your repayment vehicle<\/a><\/li>\n<\/ul>\n<h3 id="commercial-affordability">Affordability<\/h3>\nReviewing the operating performance of a business by looking at earnings before interest, tax depreciation and amortisation (EBITDA) will give a lender a snapshot of the business\u2019 profitability and, therefore, whether the mortgage is affordable or not.\n<h3 id="viability-of-business">Viability of the business<\/h3>\nExperience in your field of business activity is really crucial here and lenders will want to understand how much you know about your industry. Most lenders will want to see the previous 2-3 years trading accounts for the business you are looking to buy or raise finance for, however, some may accept less than this.\n<h3 id="deposit-commercial">Deposit<\/h3>\nMost lenders require a deposit of between 30%-50% for interest only commercial mortgages depending upon the level of risk they deem to be taking. Some lenders may consider a lower deposit if a business can offer appropriate security, however, a lower deposit may mean a higher interest rate.\n<h3 id="credit-rating">Credit rating<\/h3>\nA strong credit rating will provide huge confidence to a lender. On the other hand, a poor credit history for you or your business can cause issues with an application. However, there are specialist lenders who will consider offering mortgages to businesses that may have had problems in the past.\n\nFor more information make an enquiry and we can arrange for an advisor we work with to contact you directly and discuss further.\n<h3 id="repayment-vehicle">Repayment vehicle<\/h3>\nThe lender will need to be confident that your repayment vehicle is viable and guaranteed to provide you with an exit at the end of the term. For example, if it\u2019s the sale of a property, they will likely assess its sellability in advance. If you are planning to use a lump sum held in your company\u2019s savings account to settle the debt, the lender will expect to see evidence of the funds in advance.\n<h2 id="best">How can I secure the best interest only commercial mortgage rates?<\/h2>\nOne of the surest ways to secure the best rates for a commercial mortgage on an interest only basis is by ensuring that you have as strong an application as possible.\n\nThis means ensuring the points made above are all covered as positively as you\u2019re able; strong track record in the industry, clean credit history, healthy deposit and robust, profitable business.\n\nOnce a lender reviews all this information they can feed this into their interest only commercial mortgage calculator to decide how much they\u2019re prepared to lend and at what rate.\n\nAnother way is to ensure you consult a mortgage broker who will be well versed in what lenders right across the market are willing to offer for a business looking for an interest only mortgage.\n\nThe cleaner the application and the more lenders who are aware of this, the better terms will be on offer.\n\nWe work very closely with a number of mortgage brokers who would be able to assist businesses with their borrowing requirements. If you make an enquiry with us we will arrange for an expert to get in touch.\n<h2>Why you should speak to a commercial mortgage broker<\/h2>\nAt Online Mortgage Advisor we can offer you a first-class service tailored to your own specific needs with access to the most experienced brokers available that:\n<ul>\n \t<li>Have whole of market access<\/li>\n \t<li>Can offer bespoke advice on commercial property<\/li>\n \t<li>Have excellent relationships with commercial interest only lenders<\/li>\n \t<li>Are OMA accredited advisors<\/li>\n \t<li>Have completed a 12 module LIBF accredited training course<\/li>\n<\/ul>\n<h2 id="expert">Speak to a commercial mortgage expert<\/h2>\nIf 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<a href="https:\/\/enquiries.onlinemortgageadvisor.co.uk\/match-me-with-a-commercial-mortgage-specialist\/"> enquiry.<\/a>\n\nThen sit back and let us do all the hard work in finding the broker with the right expertise for your circumstances. We don\u2019t charge a fee and there\u2019s absolutely no obligation or marks on your credit rating.