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Commercial Property Finance
What is commercial property finance?
Commercial property finance helps business owners to invest in property, whether for commercial use or to add to a property portfolio. Given the considerable capital required to buy property outright, commercial property finance will probably be the only option for this type of investment.
Commercial mortgages and bridging loans are two main forms of commercial property finance, so how do these products work?
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How do business mortgages work?
Commercial mortgages are similar to residential mortgages in that a commercial mortgage provider offers to lend a percentage of the property’s value. The shortfall is paid by way of a deposit, which is typically larger than a deposit on a residential property.
Monthly instalments are made over a fixed mortgage term and the lender places a legal charge over the property to secure their money. This document sets out the terms under which the money has been released, and is signed by the borrower and registered against the property at Land Registry.
Different types of commercial mortgage
Owner-occupier commercial mortgage
This type of mortgage is used to purchase a property that will be used by the business making the application. Owner-occupier commercial mortgages typically require a deposit of around 75 per cent of the property’s value.
Commercial investment property mortgage
This is suitable for businesses intending to rent out a property for business use, rather than using the property as their own commercial base.
Property portfolio mortgage
Property portfolio finance is a single mortgage account for buy-to-let investors that covers a portfolio of properties.
How do commercial bridging loans work?
A commercial bridging loan is a short-term finance facility that usually lasts between three and six months. It can be used to purchase a property when speed is of the essence as the money can be released quickly but the applicant must present a clear plan for how they will repay.
Bridging finance might be used when a commercial landlord sells their property but needs to complete quickly. If the tenant company wants to buy the property, for example, it may need to apply for commercial bridging finance to secure the deal whilst a mortgage is arranged.
Bridging loans may also facilitate the purchase of commercial property at auction, or for property investors to bridge the gap between buying a property for their portfolio when a sale to release the funds has yet to complete.
Qualifying for commercial property finance
Eligibility criteria vary widely between commercial property financiers, but some criteria typically apply across the board. These include:
- Loan-to-value ratio (LTV)
- Type of property being purchased
- Business credit rating
- Personal credit rating of the applicant
- Whether the business can afford the repayments for the full mortgage term
Even though lending criteria differs between mortgage lenders we know the requirements of all UK lenders and can ensure that you are matched with the most suitable one for your business. Legal fees, valuation fees, and arrangement fees also need to be considered when applying.
Applying for commercial property finance can be a complex process. The terms and interest rates offered by lenders are a direct representation of how risky they perceive the lending to be so it is imperative to present your business in the best light.
UK Business Finance can do just that. We take the time to understand your needs and ensure that all criteria are met prior to applying. Please get in touch with our expert team to find out more.
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We work across a wide range of sectors throughout the UK, providing specialist advice to each sector.
Can I use property as security for a business loan?
Secured business loans require one or more assets to be put forward as collateral. This protects the lender from financial loss if a company cannot afford to keep up with the repayments at any stage.
Does my company have a credit score and how can I improve it?
Limited companies do have credit scores and they’re used for a similar purpose as individual credit ratings. Lenders use them as a guide to creditworthiness, but a business credit score is also useful for suppliers and investors to gain insight into your company’s financial situation.
What is bad debt and how can I protect my company?
Bad debt presents an insidious threat to the financial stability of your business. It places strain on your working capital and creates uncertainty in paying your bills, but this can be addressed successfully if you take proactive steps to protect your company.
What is the difference between open and closed bridging loans?
Bridging loans are short-term forms of secured finance that literally ‘bridge’ a gap between funds going out of a business and monies coming in.