Whether you’re starting a new business or looking to expand your existing one, a commercial mortgage could be what allows you to push ahead and provide your business with the base it needs going forward.
Commercial mortgages give you the funds to buy or expand premises, with the loan then paid off in regular repayments much like a residential mortgage.
The key benefit of this type of business funding is the control it gives you over your premises and finances, with ownership of the building meaning no unexpected rent increases or service charges.
As with all types of business funding, there are various pros and cons to commercial mortgages that you’ll need to consider.
Advantages of Commercial Mortgages
- You have more control over your property and won’t be subject to rent increases, service charges or unplanned eviction.
- As the owner of the property, you will benefit from any increases in its value.
- As the owner of the property, you have the option to sub-let an area of the building if desired.
- Interest rates on commercial mortgages are generally lower than most other kinds of finances.
- As your business grows, you can expand the premises without requiring permission from a landlord.
- Loan interest paid is tax deductible.
Disadvantages of Commercial Mortgages
- Missing regular repayments can result in the property being repossessed.
- You’ll be responsible for the cleaning, maintenance, repair and ongoing care of the building – something that would be the landlords’ responsibility in rented premises.
- Whilst you will benefit from any increases in the properties’ value, any drops in its value will also affect you if you ever want to sell.
- You will require a deposit to be approved for a commercial mortgage.
- If mortgage interest rates increase, your monthly repayment amount will go up.
What is a Commercial Mortgage?
A commercial mortgage is a mortgage that allows businesses to access the money they need to purchase commercial property. In that regard, they are similar to residential mortgages, but there are also some key differences that you will need to know about and we’ll cover them in more detail below.
How Does it Work?
Commercial mortgages work by allowing businesses to borrow money from a lender to purchase or expand premises. Much like a residential loan, if repayments are not kept up with, the building could be repossessed.
Because commercial mortgages are secured loans, the interest rates are generally more favourable in comparison to traditional business loans.
What’s the Process of Acquiring a Commercial Mortgage?
You can first of all head to a broker and talk to them about your needs. When you’re acquiring a commercial mortgage, you will want to make sure that you’re aware of all the options and don’t end up choosing a mortgage that’s not right for you; this is something that often happens when businesses go directly to a lender.
A broker can look at your situation, assess what you’re eligible for and what you’re not and take things from there. You can choose between the suitable options that your broker presents to you and look at them in-depth before going ahead.
Commercial Mortgages – FAQs
The deposit for a commercial mortgage will be bigger than you’d pay for a home mortgage in terms of the percentage of the overall value. It’s often the case that commercial mortgages require about 30% of the value of the property. But different commercial mortgages will have different requirements.
There are small arrangement and legal fees that you’ll need to cover when choosing a commercial mortgage for your business. Then there’s the cost of renovating the building and making sure it fits your needs, which buyers will need to consider.
The use of the property can impact what kind of mortgage you’re able to get. Owner-occupied mortgages will be different to buy-to-let options. So this will always be taken into account too.
A credit check is just one of the many tests lenders use to determine your risk to them. When working with Business Funding Shop, we’ll handpick lenders that give you the best chance of being accepted.
We work with a range of lenders who offer commercial mortgages up to almost any value.
Yes, you may be able to raise cash from your existing business or personal assets.
There are over 50 lenders in the UK that specialise in business mortgages, finding the right one for your individual situation can be a challenge. As well as finding a lender that will accept your application, we’ll be there every step of the way to get you the best rates and ensure your application is presented for success.
Securing Commercial Mortgages for Ambitious Businesses
At Business Funding Shop, we understand that with so much to consider, the process of securing a commercial mortgage can be overwhelming. Whether you’re looking to expand, relocate or buy your first premises, we can help.