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By Pete Mugleston | Mortgage Advisor

Pete has been a mortgage advisor for over 10 years, and is regularly cited in both trade and national press.

Updated: 24th June 2020*

Can I get a commercial second charge mortgage for my business?

Is it possible to get a second charge commercial mortgage? In short, the answer is ‘yes’, it’s definitely an option if you meet the lender’s eligibility criteria!

As with everything, the devil is in the detail. In the article below we will look at when and how second mortgage business loans could be considered a viable option as an additional funding method.

In this article we will cover:

Once you’ve read through the information below, make an enquiry and we can arrange for a commercial mortgage specialist to get in touch and discuss your requirements further.

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What is a second charge on a commercial property?

A second charge commercial mortgage is essentially a secondary mortgage secured against the equity you hold in a commercial property.

If you’re unable to repay the debt and the property is repossessed to settle the outstanding amount, your original mortgage provider will be at the front of the queue to receive the money they’re owed. The second charge lender would recoup their funds from the remaining sum.

What are the benefits of using a commercial second mortgage for my business?

If you already have a commercial mortgage on your business property and need to raise further funds, for example, to carry out renovation and refurbishment work or to extend the business premises, a commercial mortgage on a second charge basis could be a solution for you.

If you opted for this type of funding you would, as the name implies, have two commercial mortgages tied to your business operating independently of each other.

You can only apply for a second mortgage for your business if you own a property used for commercial activity, which already has one mortgage loan in place.  

Commercial second charge mortgages are available either as interest-only or capital and repayment. A lender, when considering second mortgage applications, will require security in the form of a tangible asset as collateral. Typically, the business premises would be used for this purpose.

Why get a second charge commercial mortgage?

There are a number of reasons why you might borrow under these circumstances, including…

Business expansion

All businesses need to feel they are moving forward and look to expand at any opportunity. Here are a few practical examples of how a commercial second mortgage could assist with such plans:

Shop renovation

If your commercial activity centres around shop premises and is heavily reliant on customer footfall, those premises at some point may begin to look tired and dated. By renovating your shop you’re able to modernise and present a fresh new look, perhaps with new branding, which would raise both customer interest and footfall leading to increased profitability.

Extension to business premises

Any increase to the overall area of your business premises could allow for an increase in productivity and, subsequently, higher overall revenues and profits. Perhaps you own a factory where an extension would allow additional space for more machinery and, therefore, higher output.

Maybe you run a garage where an extension would allow for more vehicle bays so you can accept a higher capacity of workflow. If you own a restaurant an extension would allow for an increase in your table covers and kitchen space.

As an alternative to remortgaging

If you need to raise capital but cannot, or do not wish to remortgage, for whatever reason, a second charge commercial mortgage can provide a lifeline.

The above are just a few examples of how a second mortgage for your business can help increase your profitability. Rather than waiting until you can accrue sufficient profits to pay for any work yourself, borrowing the funds you need can allow your business to get a jump start ahead of the competition.

If you’d like to understand more about how this form of lending can assist your business, make an enquiry and we can arrange for a specialist to get in touch.

How do I qualify for the best commercial second mortgage rates?

The best way to secure the most competitive interest rates, whether for a first or second charge mortgage is to ensure your business is able to present a strong application when assessed against a lender’s eligibility criteria.

Lenders will review an application for a commercial second mortgage on a case-by-case basis.

In a broad sense, a lender will look at how closely you meet their eligibility criteria for these products…

Having already had the experience of this process when applying for the first mortgage, a business should be quite well versed in these requirements. In the case of a commercial second charge mortgage, a lender may likely focus on how the additional funding will affect the overall profitability of the business positively.

A robust application, that is able to offer a solid trading record and realistic profit projections can expect to raise a lender’s confidence and secure the best interest rates.

In addition, rather than trying to scour the market looking for what each and every lender has to offer, the more sensible action is to utilise the services of a mortgage broker who will already have a deep understanding of what market solutions are available.

We 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 can arrange for an expert to get in touch.  

What loan to value (LTV) can I expect on a second mortgage for my business?

When considering the LTV for a commercial mortgage on a second charge basis, it’s important to understand what equity currently exists in your business property when taking your first mortgage into account.

If your business premises are worth £300,000 and the outstanding balance on your first mortgage is £100,000 you know there is £200,000 equity in your property. Most lenders, for a commercial second charge mortgage would offer an LTV between 50%-65%. On this basis, your business could borrow an additional £50,000-£95,000.

What other options are available?

A second charge mortgage is just one of many types of commercial lending which would be available.

Some of the alternatives include:

Remortgaging existing arrangement

The most obvious alternative to a second charge mortgage. Whilst commercial mortgage interest rates are generally available on variable rates, the risk profile is judged on a case-by-case basis. Additional funding may be judged outside the parameters set by an existing lender, or rates may need to increase to cater for this.

In this event a second mortgage may be a more viable and cheaper option in the long term.

Unsecured business loan

Some borrowers take out second charge commercial mortgages for business loan purposes, i.e. as an alternative to an unsecured business loan.

But, If the extra funding you need is less than £25,000 it may be worth considering a shorter term unsecured business loan. This type of borrowing is usually available more quickly than a mortgage and would be a good option if you already have some capital available but need more to complete your renovation work, for example.

Asset financing

Depending on what type of business you run, you might have substantial equity tied up in assets such as equipment and company vehicles. Through asset financing, you could refinance your loans on these items (or securing new ones against them if you own them outright) and unlock working capital.

These are just some of the other options available. If you get in touch with us we can arrange for an advisor we work with to contact you and look, in detail, at all the funding options and help you select the one that best suits your circumstances.

Why you should speak to a commercial mortgage broker

At 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:

  • Have whole of market access
  • Can offer bespoke advice on 2nd charge business lending
  • Have excellent relationships with 2nd charge commercial lenders
  • Are OMA accredited advisors
  • Have completed a 12 module LIBF accredited training course

Speak to a 2nd charge commercial mortgage expert

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 online enquiry.

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.

Updated: 24th June 2020
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FCA disclaimer

*Based on our research, the content contained in this article is accurate as of 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 info 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.