Commercial mortgage
A commercial mortgage can help you secure the ideal business premises to occupy or rent out to generate an income. Get the funding you need to expand your property portfolio or benefit from the security of property ownership.
What is a commercial mortgage?
A commercial property mortgage gives you the finance to buy or refinance any property for business use. This could be an office block, warehouse or retail unit that you are either looking to occupy yourself or let to business tenants.
A commercial mortgage can help you secure larger premises for your expanding business, purchase a leisure complex or refinance an existing property so you can free up cash to invest and grow further. There really are many reasons why a commercial mortgage makes sense for businesses looking to expand and unlock equity.
Below we explain more about how commercial mortgages work and the benefits of this form of commercial property finance.
How does a commercial mortgage work?
A commercial property mortgage gives you the means to buy any property that will not be used as your primary residence. It must be used solely for business activities, or represent a business in its entirety.
Alternatively, you could take out a commercial mortgage on a building you already own to release equity and use the cash for other purposes.
You might choose a commercial mortgage because:
A commercial mortgage can help you secure larger premises for your expanding business, purchase a leisure complex or refinance an existing property so you can free up cash to invest and grow further. There really are many reasons why a commercial mortgage makes sense for businesses looking to expand and unlock equity.
Below we explain more about how commercial mortgages work and the benefits of this form of commercial property finance.
- You want to own your business premises and move away from leasing.
- You want to purchase a property on a buy-to-let basis, letting the building to business tenants and making a return on the rental income.
- A combination of the above: You occupy the premises but also rent out space to other businesses.
Just like a traditional homeowner mortgage, the lender retains a hold over the property until the loan is repaid. This means it can seize ownership of the property if you are not able to keep up with the monthly repayments and default on the loan.
The fact the lender has the security of a physical asset means you can borrow more money at a lower interest rate than other types of business loans.
A commercial mortgage is one area of commercial property finance. You may also want to consider bridging loans and property development finance. If you are looking to let to residential tenants, you’ll probably be better suited to a buy-to-let mortgage.
Thoughts from Matt
“Commercial mortgages are a great choice if you want to transition away from renting your business premises, or you’re looking to unlock capital in all or part of a property you own.
There aren’t many cash buyers when it comes to property ownership. If you’re considering buying a property for business use, a commercial mortgage is your best option as you can make repayments over a period of time that suits you.
We’ve loaned hundreds of millions in commercial mortgage deals over the years to businesses in all sectors so get in touch.“
Matt Haycox
Founder and CEO, Funding Guru
How does a commercial mortgage work?
If you’ve found a suitable property or are looking to refinance one of your existing sites, the next step is to find a lender.
If you are letting the property to tenants, we will want to see that the property can generate enough rental income to more than cover the mortgage. Ideally, the rent will be 150% of the mortgage payments. So if your monthly mortgage payment is £3,000, your rental income will need to be at least £4,500.
At Funding Guru, we have funded the acquisition and redevelopment of all range of properties in the UK, so we know the right mortgage for your needs. Even if we can’t provide the finance ourselves, we’ll have a solution for you as we are a broker as well as a lender.
Call us today on 0333 006 9141 or fill out an online application form and one of our dedicated advisers will be in touch shortly.
How does a commercial mortgage work?
When you apply for a commercial mortgage, we will want to see the following.
- Details of the property you are looking to purchase or refinance
- Your personal and business credit rating
- The strength of your company’s balance sheet, including your cash flow and debts
- Future profit forecasts
- The value of existing assets you own
- The size of the deposit
- At least six months’ worth of personal and business bank statements
Pros of a commercial mortgage
There are many benefits of taking out a commercial mortgage. Below are just some of them.
If you chose a capital repayment mortgage then your monthly repayments will pay back your loan, rather than lining a landlord’s pockets. At the end of the mortgage term, your business will own the property outright.
You can release equity from the mortgage if you are looking to refinance and release cash to spend elsewhere.
Ideally the value of the property will increase over time, increasing the value of your initial investment. If you rent the property to tenants, the rental income should be higher than the mortgage, leaving you with a profit.
If you take out a fixed-rate deal, your payments are fixed and outlined clearly at the start of the mortgage term. If renting, you may have less control over monthly repayments determined by the landlord.
The interest payments on a commercial mortgage are tax deductible, reducing your corporation tax bill and making the monthly repayments cheaper in real terms.
Cons of a commercial mortgage
Before considering a commercial mortgage, it is important to consider the risks as well as the pros.
If you’ve got a less-than-ideal credit history, you may find it challenging to get a commercial mortgage. At Funding Guru, we take into account a company’s vision as well as its history. So if you’re a business owner struggling to get a commercial mortgage, get in touch.
Commercial mortgages can take months to secure because lenders need to carry out detailed checks on your business and the property. If you are looking for a short-term property loan, bridging finance may be more suitable.
You should be prepared to own the property for a long period of time, or consider how you would sell or rent the property if you wanted to move.
While you would expect the value of a property to increase over time, this isn’t always the case. To avoid a potential fall in the property’s value, consider its location, flexibility of use and its distance to local amenities.
For a commercial mortgage, you’ll likely be required to put down at least 30% as a deposit which can put a strain on cash flow.