Everything You Need to Know About Commercial Mortgages

Taking out a commercial mortgage is a huge step to take for any business and requires a massive commitment from a business owner. Whilst it can seem a daunting prospect, there are a whole host of benefits a company can expect to see from purchasing their own premises and it’s something that should be considered by all businesses.

In this article, we will look to answer some of the most frequently asked questions relating to commercial mortgages.

What is a Commercial Mortgage?

Before going any further, you may be wondering, ‘what exactly is a commercial mortgage?’ In simple terms, a commercial mortgage works in the same way a mortgage that you’d take out on your house does, but the property must be used for business reasons rather than to live in. The money that is borrowed is secured against the property you are purchasing, just like a residential mortgage.

Commercial mortgages are offered on terms which last between 3 and 25 years and are typically flexible based on the number of repayments you are willing to make. You could also consider taking out bridging finance if you need to complete your purchase quickly, as they can bridge the gap to getting a commercial mortgage approved. This type of loan works well if you are a property developer looking to convert properties which need little work, to then resell at a higher price.

Commercial mortgages typically fall into two categories, these are as follows:

  • Owner-Occupied – If you are looking to purchase a property with the intention of your business operating in this space, an owner-occupied commercial mortgage will be perfect for you. This is often utilised when a company either wants to purchase the property they are renting or if a business is looking to upsize following a period of sustained growth.
  • Commercial Investment Mortgages – If you’re planning on purchasing a property, but won’t be using it yourself, a commercial investment mortgage is likely more suitable. These fall into the following two categories:
  • Commercial Buy-To-Let – This applies when you’re looking to purchase a property to let out to other businesses.
  • Residential Buy-To-Let – A residential buy-to-let mortgage is used by professional landlords who are purchasing a property to let out to tenants.


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How Much Money Can I Take Out?

The total you can take out on a commercial mortgage does vary based on the value of the property you are looking to purchase. Here at Ping Finance, we take pride in our commercial mortgages offering up to 75% of the property’s value, which is 5% higher than the vast majority of lenders on the market today.

The remaining 25%-30% needed to secure the property will need to be paid by the business. Finding the remaining money to purchase the property can sometimes be a stumbling block for some businesses, as commercial properties are often quite expensive to buy.

What Are the Benefits of a Commercial Mortgage?

Taking out a commercial mortgage can provide several key benefits to your business, especially in the long term.

It can be tempting to simply rent a property for your business, as this can provide your company with a place to operate, without any of the potential issues that come along with owning and maintaining a building. However, if you are looking to rent long term, it would definitely be worth considering taking out a commercial mortgage to purchase, but it’s worth noting this isn’t right for all types of businesses.

Here are a few of the benefits you can expect to see:

  • At the end of the term, you will fully own the property, this is a huge asset for any business and can be sold on or rented out to other businesses in the future
  • You will no longer have to pay rent. This can present huge savings; you’ll often find that a commercial mortgage is actually cheaper than renting, especially in highly sought-after areas
  • Commercial mortgages will be issued on a variable basis, but these are priced just above the Bank of England base rate or Libor, which means any fluctuations will fall in line with the countries wider economy.

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How to Apply for a Commercial Mortgage

Now that you have decided that you’re definitely looking to take out a commercial mortgage, the next step is knowing how to apply. Before applying for a commercial mortgage, it’s worth knowing that you’ll be subject to a few financial checks before any lender will consider you. Some things you may be asked to provide are:

    • Two years of accounts or tax returns
  • Bank statements covering the last 6 months
  • Asset and liabilities statements
  • A comprehensive document detailing the profile of all directors and partners of the business

There are an awful lot of lenders out there who are offering commercial mortgages, so making sure you choose the right one for you is vital. Rates can vary drastically so it’s best to do your homework before committing to one lender.

Some lenders will only offer mortgages when there is plenty of asset security available to them, whilst others prefer to lend to owner-businesses or will only fund land developments. Be sure to check which type of mortgage any potential lenders you are considering, before spending time contacting them.

If you’re big on maintaining contact with your mortgage provider throughout its term, it’s also worth considering taking a commercial mortgage with a smaller company, as they can give you a more personalised experience tailored to your preferences.

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If you are looking for a commercial mortgage broker to help you purchase your commercial property, be sure to get in touch with the team here at Ping Finance. We have a team of experts who are on hand to find the right deal for your company’s needs.

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