Commercial mortgages are often utilised to secure finance on any property which isn't your residence. Like with personal loans, business loans often peak at around £25,000 and if you need to borrow any more, lenders are likely to ask for assets to be tied to the debt as collateral. However, by taking out a commercial mortgage, you can secure the finance against the property itself, in the same way you could with residential mortgage, thus avoiding standard secure loans, and their attached risks.
As with any mortgage, you should always shop around to find the best deal for you. The commercial mortgage market is something of a more specialised area of expertise, and we'd recommend that you enlist the services of a commercial mortgage broker to obtain sound advice.
A good broker will obviously assess and recommend the best current deal for you, but also going forward, they should continually research the market, to ensure that you can switch to a better rate if one becomes available.
Like with residential mortgages, whether you opt for a capital 'fixed term', 'variable rate' or 'interest only' mortgage will depend on your own situation and business intent. And as such, the risks and rewards of each can be considered in the same way as you would with a residential mortgage.
Making an Application
As you've likely anticipated, all applications are subject to various credit checks. That is to say that the success of your application will be somewhat dependant on your credit history. It's worth mentioning here that any 'partners' on the application will also need to be credit checked, and should they have a bad credit rating, you application may be rejected because of financial association with said person.
However, some banks and other lenders will still help those with an adverse credit history, and no doubt, your mortgage broker will be able to advise on the best options going forward, if you find yourself in this situation.
Alongside the personal credit check you can expect the lender to also ask for some information about the business itself- particularly if you're buying both a property and business together. You should be prepared to provide information along the following lines:
- Two years worth of audited business accounts
- Three year profit/loss forecast
- Current business performance, incl incomings/outgoings
- Details of any other key-stakeholders
- Asset and liability statements of each applicant
- A business plan regarding how the property acquisition will grow the business and therefore aid repayments
- Credit status of the business- i.e. any money owed to the business by clients, and any existing debts belonging to the business
Bear in mind that all of this information is provided to satisfy just two main considerations for any lender; whether you can make the repayments, and whether the value of the property will cover the cost of the loan, should you default on the agreement.
Like any mortgage, you'll need to consider the additional fees you'll face when processing a commercial mortgage. The most common additional expenses which you'll face are as follows:
- Arrangement Fees: These are normally set between 0.5 – 1.5 % of the value of the loan
- Legal Fees: Processing and execution of contracts by solicitors etc. You will have to pay the legal fees for yourself and for the lender.
- Valuation Fees: A survey must be performed to support the establishment of the properties value
- Redemption Fees: these can occur during the actual mortgage term if you wish to change provider or products.
- Broker Fees: If you do decide to use a broker, most charge around 1% of the value of the loan. Be careful though about agreeing to pay anything until the broker has procured the loan for you on the pre-agreed terms.