Can I get a mortgage for a commercial property?

How to finance a property for my business

Commercial property mortgages offer valuable flexibility to landlords and those investing in commercial property for their own business use. Considering the typical cost of a property, a commercial mortgage opens up many opportunities for business expansion.

Commercial mortgages can be tailored to your needs and accessed quickly where necessary – they’re fundamental if you require lending before you’ve completed on another property sale, for example.

So what do you need to consider when applying for a business mortgage?

General eligibility criteria for commercial mortgages

Lenders’ requirements vary considerably when it comes to granting commercial mortgages, but the following are typically considered when assessing an application:

• Business credit rating, and sometimes the business owner’s personal credit rating
• Long-term affordability for the business
• Loan-to-value (LTV) ratio – the amount of loan when compared with the property’s value
• Type of property – offices, for example, or industrial property such as warehousing

Different types of commercial mortgages also exist, including those for owner-occupiers, commercial landlords, and owners of a property portfolio. Bridging loans can also help access a longer-term mortgage by providing the funds to ‘bridge the gap’ between buying and selling. Bridging loans and commercial mortgages are different, however, they are often used in conjunction with each other to allow for a smooth purchasing process.

What to consider before applying for a business mortgage

Fees

Commercial property mortgages typically attract fees for valuing the proposed purchase, legal fees for dealing with the transaction, and lender administration fees. These all need to be factored into affordability when considering the overall purchase.

Use of the property

How you’re going to use the property dictates the type of mortgage to apply for. Owner-occupier mortgages are similar to residential home loans in that they’re paid over a long term and require an initial deposit.

If you’re investing in a property as a commercial landlord, a commercial investment property mortgage provides the correct structure. Alternatively, you may be starting or adding to a property portfolio, in which case property portfolio financing would address your specific needs.

How to apply for a commercial property mortgage

It’s important to carefully prepare before applying for a commercial property mortgage as it can be a complex process. You’ll need to demonstrate a healthy cash flow and trading history whilst also presenting a business plan with projected cash flow, sales, and profit figures.

With so many lenders offering different terms and conditions, obtaining guidance from a business finance broker is essential to ensure you sign up for the product that best meets your needs.

A lender’s main consideration when assessing an application is the risk the borrower poses to them. Importantly, if you’re seen as a higher risk, the mortgage terms offered may be detrimental to your business in the long term.

UK Business Finance are leading business finance brokers and will guide you towards the best commercial mortgage deals taking into account your business’s specific needs. We cover the whole of the commercial mortgage market and can make the application on your behalf, if necessary. Please get in touch to find out more.