If you’re just staring out in business or are looking to expand, chances are you will need a mortgage to finance the purchase of business premises.
Most of the high street banks do offer commercial mortgages, but as with taking out any loan or mortgage, you do need to adhere to a certain amount of criteria. As with a residential mortgage, a lender will expect you to have a positive personal credit rating, but with a commercial mortgage a lender will also need to see evidence that your business is creditworthy.
In essence there are two types of commercial mortgages that you can apply for when purchasing business premises;
Also known as an owner occupier mortgage, a business mortgage is primarily for those individuals who are looking to buy new premises for their business as a start-up or those who are wishing to expand and who are perhaps looking to refinance.
Commercial Investment Mortgage
Commercial Investment Mortgages are in place for landlords; landlords who need finance to purchase non-residential properties with a view to renting out to business owners. As with a business mortgage, this commercial investment mortgage can also help those seeking to refinance and remortgage.
The application process for a commercial process isn’t as clear cut as applying for a residential mortgage. In comparison, residential mortgage applications are relatively simple however, commercial mortgages are seen by lenders as more of a risk and the application process reflects this.
The vast majority of lenders will set a ‘loan to value’ ratio on the amount you wish to borrow. This means that your lender will expect you to partially invest a proportion of your own money to the purchase and generally speaking, the more you are personally willing to invest, the more likely you are to secure a mortgage loan for your business premises.
Before agreeing to the loan, your mortgage lender will undoubtedly take into consideration your current business circumstances and if you are a new start-up, evidence of a clear and concise business plan together with long term financial profit projections will be required.
It is fairly common place that commercial mortgages carry a higher rate of interest than any residential mortgage but that is simply because banks consider these types of mortgages to be a higher risk. Usually coming in at anywhere between one and six per cent above base rates as set by the Bank of England, a commercial mortgage is either set as variable or fixed and over a period of anything between ten and twenty years.
For those who are new to the concept of commercial or business mortgages, the process can often seem complicated and daunting. This is generally down to the fact that the type of business and the premises required are also a factor. Commercial mortgages can cover anything from leisure facilities such as public houses, restaurants, casino facilities, as well as hotels and guest houses to retail units, offices, and industrial units.
Regardless of your needs when it comes to mortgages, as always we recommend that you shop around for the best deal to suit exactly what you need. In this instance you may find the knowledge of a reputable mortgage broker more appropriate to your needs. Not only will a mortgage broker be able to offer you imperative advice and know the finer details of commercial mortgages, but their local knowledge will also help you get the most out of your business prospects.
An experienced mortgage broker will be able to offer in depth recommendations about which commercial mortgage will suit your needs perfectly and make the seemingly daunting application process as simple and time effective as possible.