Commercial Mortgage FAQs

Borrowing money for your business?

When are commercial mortgages used?

Commercial mortgages generally take over where business loans finish. Business loans up to £25,000 are unsecured, but for larger amounts lenders need security in order to reduce the risk to themselves.

A business mortgage usually lasts from three to 25 years and you can usually find a 70-75% mortgage. This is a measure of loan-to-value ratio to see how much you’re borrowing in relation to how much the property is worth. If it’s an investment then the amount you can borrow will be determined by the rental income generated by the investment, but this will not exceed 65% of the purchase price. If you are buying a business which includes goodwill, stock etc then the amount available will be further reduced.

Key features of taking out a commercial mortgage

A business mortgage plan differs from a regular mortgage in the following ways:

  • There are usually no fixed rates for commercial mortgages
  • You’ll usually pay a higher interest rate on commercial mortgages compared to regular home mortgages as these are considered higher-risk to lenders
  • Commercial mortgages tend to offer better interest rates than regular business loans as these require property as collateralHere are a few reasons why you might want to think about taking out a commercial mortgage:

The benefits of taking out a commercial mortgage

  • The interest on your commercial mortgage is tax-deductible
  • If your property increases in value, your capital could also see an increase
  • You’ll be able to rent out the property to generate extra income

Types of Commerical Mortgages

Mortgage loans can be divided into two categories:

Owner-occupier mortgages: This is used to buy property that will be used as trading premises for your business.

Commercial investment mortgages: This is used for property you’re planning to let out.

Alternatives to a business mortgage

There are several alternative options you can choose from if you decide that a business mortgage is not the right choice for you:

Bridging loans can help you complete the purchase of a property before you manage to sell your existing home.

Short-term loans can help you access funds without making any long-term commitments. This is often used for financial relief to cover working capital, cash flow, and a variety of expenses.

Personal loans can be used to borrow anywhere from say £1,000 to £25,000 - you do not have to be a homeowner to apply.

Adapted from https://www.moneysupermarket.com/business-finance/commercial-mortgages/