Commercial Mortgages

What is a Commercial Mortgage?

A Commercial mortgage is a medium to long term loan which can be used to fund the purchase of business premises, extend a premises, to release capital from premises already owned, or to buy an existing business.

A commercial mortgage can also be used to purchase a commercial investment property i.e. a commercial property that will be rented or leased to another business.

What Properties Can By Funded Via a Commercial Mortgage?

Commercial mortgage finance is available on a wide range of properties such as:

  • Offices
  • Hotels and guest houses
  • Industrial Units
  • Warehouses
  • Care Homes
  • Pubs and Restaurants
  • Shops and Retail Units
  • Shops with Living Accommodation
  • Factories
  • Agricultural Land

Who Can Get a Commercial Mortgage?

A commercial mortgage can be approved to sole traders, partnerships, LLPs, and Limited Companies. A pension fund, in the form of a SIPP or a SSAS, can also borrow via a commercial mortgage.

What Do You Need to Get a Commercial Mortgage?

When applying for a commercial mortgage the key point to remember is that the lender’s decision will be based your ability to meet the repayments. This will be assessed by reviewing the historic financial performance of the business (past Financial Statements/Accounts and latest Management Accounts) and financial projections (projected Profit and Loss, Cashflow and Balance Sheet).

To help the lender reach its decision you will typically need to complete a detailed Application Form, prepare a Business Plan and submit full financial details about the promoters, directors and shareholders.

What Are the Typical Requirements, Terms and Conditions?

Typical terms for a commercial mortgage would include:

  • A legal charge will be taken on the property to secure the commercial mortgage
  • The maximum loan to property value (known as the LTV) will be within the range of between 65% and 80% of the purchase price or valuation, whichever is the lower. The LTV will vary by lender. This means that you will need to have a deposit or contribution of between 20% and 35% of the purchase price/valuation
  • The minimum amount is typically £25k; depending on the lender maximum amounts may apply
  • Repayment term will typically range from 1 year to 25 years
  • The interest rate chargeable will be calculated from the Bank’s current Base Rate plus an additional percentage ranging from 3% to 5%. The calculation of the additional percentage (referred to as the ‘bank’s margin’) will be based on a variety of factors. In simple terms, the lower the risk to the lender then a lower margin is applied; a higher perceived risk will result in a higher margin.
  • Interest rates can be fixed for a number of years or variable (moving with the bank’s Base Rate)
  • During the early years, in order to ease cashflow pressure, capital repayment holidays can be requested. If agreed you will pay interest-only for a period typically for up to 3 years; thereafter the repayments will cover both capital and interest
  • Arrangement or Lending Fees will be charged by the lender at amounts between 1% and 2%. If arranged through BLS further fees may also be charged by BLS and are negotiated on an individual basis. In some cases the lender fees and associated borrowing costs can be added to the loan
  • Early repayment charges will typically apply if you repay all or a portion of the mortgage before the expiry of the fixed term. If such charges do apply the percentage will vary according to the Lender

What Do I Do Next?

If you are looking for a commercial mortgage, to ensure you get an offer which suits your requirements, get in touch with us to discuss the options available to you.

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