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.