A commercial mortgage is similar in principle to a residential mortgage, except that it is used to purchase property or to raise capital for business rather than home purposes. As with residential mortgages, the lender
You retain rights to the property until the loan is paid in full.
What would you use a commercial mortgage for?
The types of property that people can buy using a commercial
mortgage can be anything from hotels, restaurants, shops and
takeout food to office buildings, factories, warehouses and farms.
Sometimes people can buy the business and the property at the same time.
if the two are intrinsically linked, such as a hotel or a restaurant.
When real estate is acquired to be used as commercial premises, the
mortgage is known as a commercial owner-occupant mortgage.
Alternatively, a commercial mortgage could be used for refinancing.
People might want to unlock capital from their existing business
real estate to expand or improve its premises or facilities, or to raise
cash for any other business purpose.
There are many other uses for a commercial mortgage, such as buy-to-let
mortgages, where people buy property (perhaps residential) as
investment and rent it, or commercial development mortgages, where
people buy a property to develop it and sell it for a profit.
Why buy premises instead of renting?
Taking out a commercial mortgage is a huge leap for your business and
must be carefully considered before entering into the commitment.
However, it can be an excellent investment and business owner.
The premises you occupy can bring many advantages to your business:
In most circumstances, the proceeds of the loan are not considered
be taxable income and interest payments are tax deductible.
You will have a clear payment plan, with personalized terms and rates
to satisfy your needs. (See below for more details on this.) This means
that you can manage your cash flow more easily.
Mortgage payments can be cheaper than rent.
Any property purchase is an investment. Your asset could
appreciate greatly in value, thereby increasing your capital.
You have the potential to make money by subletting. For example,
you may have space on your property that you don’t currently need,
and could make money by renting it to another business until
you need it to expand your own business.
Why use a commercial mortgage to raise capital?
If you already own commercial property and need cash for your business
for whatever reason, unlock your home equity by refinancing
or re-mortgaging is an effective solution. Think of it as a loan that
could be used for any commercial purpose, not just to expand or
upgrading its facilities. There are many benefits to doing this:
Business mortgages can be easier to obtain than business loans,
especially for small businesses, as ownership provides security to
the lender.
Unlike many business loans, which tend to have a short repayment
term, commercial mortgages cover a long period, from 15 to 25
years, depending on the lender and the financial circumstances of your
business.
In most circumstances, the proceeds of the loan are not considered
be taxable income and interest payments are tax deductible.
There are two ways you can use a commercial mortgage to
obtain capital for your business:
1. Refinance your current business mortgage to include the loan
amount you want to borrow.
2. Release the equity that has been accumulated in your current property,
that is, the current value of the property minus any outstanding mortgages
or debts linked to it.
What are the costs and payment options for commercial mortgages?
Payment plans tend to be similar to residential mortgages. The main options are fixed-rate or variable-rate payment mortgages or interest-only/endowment mortgages.
However, unlike residential mortgages, interest rates for
commercial mortgages tend to be higher as commercial loans are levied
as more than one risk. Rates will vary depending on the circumstances.
of your business, but generally speaking, the higher the risk,
higher the interest rate. For the same reason, repayment terms also tend
be shorter than residential mortgages, typically 15 to 20 years.
You may also need to collect a deposit, since most lenders
will not provide 100% loan-to-value mortgages, that is, they will not provide a
mortgage for the full amount of the purchase and will wait for a down payment
from you as a form of security (typically 20-30% of the purchase price,
although some lenders accept as little as 5%, but with a higher
interest rate for repayment).
Other expenses to consider are the installation costs involved in organizing a
commercial mortgage, such as legal fees, surveys, and broker fees.
As for the responsibility to pay the mortgage, it depends on
the type of business. If you are a sole trader, the liability will be
lie to you and you may also be personally liable in the event of a breach
on refunds, which means you could also lose personal property
such as commercial real estate that is mortgaged. if you’re in a
partnership, liability and obligation apply to all partners. Yew
is a limited company, responsibility and liability belong to the
business, although personal security may be required to approve the
mortgage depending on the profitability of the business.
How do you get a commercial mortgage?
When applying for a commercial mortgage, you will need to make your
task and build a strong business case to demonstrate your company’s ability
ability to pay the mortgage. Be prepared to undergo a thorough
examination of your finances, including:
business history of your company: financial statements, earnings
and loss accounts, balance sheets, past and present cash flow, all
certified by an accountant
future projections for your company: long-term business plan,
projected use of the property, earnings potential, projected cash flow
personal finance: the financial stories of you and everyone
other key stakeholders in the business, such as creditworthiness and
past earnings
All of these factors will determine the lender’s perceived degree of
risk when lending you the money, which in turn will determine the term
and the interest rate on the loan they are willing to give you.
The obvious first step for many people applying for a commercial
mortgage is to approach your bank or commercial lender, with whom
They already have an established relationship. However, for this very reason
you are unlikely to receive competitive treatment.
The best way to obtain a commercial mortgage is to use the services of a
independent specialist mortgage broker, who can help you get a good deal
package that suits your needs whatever your circumstances. even if you
bad credit doesn’t mean you won’t qualify for a
commercial mortgage. Have a broker who truly represents you
strengthen your case. They have access to a wide range of lenders and
understand your criteria for loans, as well as your specific needs.
Therefore, they can perform a specific search, which increases their chances
to find a suitable loan. In fact, the broker may even be able to
obtain several different options from several interested lenders, who
provides the scope to negotiate a fantastic deal for you.
Money is not all you will save. Imagine if you tried to apply to
several lenders yourself – think about the time it takes to complete all the
applications and time wasted applying to the wrong lenders.
The independent advice and specialist knowledge that a broker provides
they are priceless.
