All you need to know about Commercial Mortgages

Which mortgage works for your investment?

01.

What is a commercial mortgage?

A commercial mortgage, also known as a business mortgage, is a medium to long-term loan—typically lasting up to 25 years—designed to help finance the purchase of commercial property. These mortgages are tailored to meet the needs of both the lender and the borrower: the lender seeks security and a return on investment, while the borrower gains access to capital with manageable monthly repayments.

Typically, lenders offer up to 70% of the property’s value, with the borrower contributing the remainder as a deposit.

Commercial mortgages can be used for a range of purposes, including:

Releasing capital from an existing building, which can be invested back into your business.
Buy an investment property to be let out to a third party.
To finance any property for business purpose
Expanding an existing business for property development.

02.

Types of commercial mortgages

Owner-Occupier Mortgages
An owner-occupier mortgage is designed for business owners who want to purchase a property to operate and manage their own business from. It allows you to own the premises where your day-to-day business activities take place.

Commercial Investment Mortgages
A commercial investment mortgage is intended for those purchasing a property as an investment—typically to generate rental income by leasing the space to other businesses.

Pro’s of taking out a commercial mortgage

The interest on your commercial mortgage can be tax-deductible.
If your property increases in value, your available capital could also increase.

You can rent out the property for extra income.
You can choose a convenient location for you and your business.
You have the freedom to adapt, modify and decorate as you wish.

Potential drawbacks of taking out a commercial mortgage

You will have to factor in having to buy equipment, furniture and setting up appropriate insurance.
Should your company expand or market conditions change, you may wish to move premises, which may be slightly trickier if you own the building.

03.

Getting a commercial mortgage with bad credit

Commercial Mortgages with Bad Credit

It’s still possible to secure a commercial mortgage even if you have bad credit—though the process may be more challenging. Many lenders are willing to consider applicants with a poor credit history, offering a valuable opportunity to begin rebuilding your credit profile.

Successfully managing a commercial mortgage can help improve your credit score over time. Once your financial standing has strengthened, you may also have the option to remortgage to a more competitive deal with better terms.

Points to consider when taking out a commercial mortgage

Commercial Mortgages deposits

Deposits for a commercial mortgage can sometimes be quite hefty, (around 30%), therefore it is a good idea to ensure you are able to pay both the deposit and monthly payments.

Time you have been trading

If you haven’t been trading for long, lenders may see this as a high-risk case and request personal guarantees.

Using a mortgage broker

It is best to use a commercial mortgage broker who is able to navigate the business mortgage world and are able to find mortgage deals that are not available on the high street market.