Purchasing commercial property can be a major milestone for any business. Whether you’re looking to expand operations, secure a permanent location, or invest in real estate, a commercial mortgage can provide the financial support you need. Unlike residential mortgages, commercial mortgages are tailored to meet the needs of businesses and investors.
In this guide, we’ll break down the process of securing a commercial mortgage and help you understand what lenders are looking for.
Take a look at our post covering all things commercial finance…
What Is a Commercial Mortgage?
A commercial mortgage is a loan used to purchase, refinance, or develop business premises. It’s typically used for properties such as offices, warehouses, retail units, and industrial spaces. These mortgages are also commonly used by property investors for buy-to-let purposes.
Types of Commercial Mortgages
- Owner-Occupied Commercial Mortgage: For businesses buying a property to operate from.
- Commercial Investment Mortgage: For investors purchasing property to rent out.
- Commercial Development Finance: For large-scale projects involving property construction or renovation.
Step by Step
Step 1: Assess Your Requirements
Before applying for a commercial mortgage, define your goals:
- Are you buying a property for your own business use or as an investment?
- How much deposit can you provide?
- Do you have clear financial records and projections?
Tip: Most lenders require a deposit of 25-40% of the property’s value.
Step 2: Prepare Your Financial Documents
Lenders will want to see a full picture of your financial position. Be prepared to provide:
- Business accounts for the past 2-3 years
- Profit and loss statements
- Bank statements
- Business plan (for new ventures)
- Property details and valuation
Did You Know?
Lenders often prefer businesses with a strong trading history and consistent profitability. However, if your business is a start-up, presenting a clear and credible business plan can boost your chances.
Step 3: Choose the Right Lender
Different lenders specialise in different types of commercial mortgages. At Kick Asset Finance, we work with a panel of over 50 lenders to find the most competitive deals. Factors we consider include:
- Interest rates (fixed or variable)
- Loan-to-value (LTV) ratio
- Repayment terms (typically 5 to 25 years)
- Fees and additional costs
Step 4: Submit Your Application
Once you’ve gathered your documents and chosen a lender, it’s time to apply. Your application will generally include:
- Details of the property you wish to purchase
- A valuation report from a qualified surveyor
- Information on how the loan will be repaid
Tip: Be transparent about any past financial challenges. Lenders appreciate honesty and may offer tailored solutions.
Step 5: The Approval Process
After submitting your application, the lender will carry out various checks, including:
- Credit assessment: Reviewing your business and personal credit history.
- Property valuation: Ensuring the property value aligns with the loan amount.
- Affordability check: Confirming your ability to meet repayments.
This process typically takes 4 to 8 weeks, though complex cases may take longer.
Step 6: Complete the Purchase
Once approved, you’ll receive a formal mortgage offer. Your solicitor will handle the legal process, including property searches, contracts, and the exchange of funds. After completion, you’ll begin making your agreed monthly repayments.
Tip: Budget for additional costs like legal fees, survey fees, and possible arrangement fees from the lender.
Pros and Cons of Commercial Mortgages
| Pros | Cons |
|---|---|
| Long-term financing with fixed or variable rates | Requires a significant deposit |
| Potential for property value appreciation | Interest rates may be higher than residential mortgages |
| Ownership of a business asset | Monthly repayments can affect cash flow |
| Rental income potential if subletting | Risk of property depreciation |
Which Businesses Can Benefit from a Commercial Mortgage?
- Retail shops and restaurants looking to establish a permanent location
- Manufacturing companies needing warehouse space
- Property investors seeking long-term rental income
- Office-based businesses planning for growth
If you’re unsure whether a commercial mortgage is right for you, our team at Kick Asset Finance is here to guide you through the process.
Conclusion
Securing a commercial mortgage doesn’t have to be daunting. With the right preparation and guidance, you can finance your business premises and take the next step toward growth.
For more information about our full range of financial services, check out our post on comprehensive finance solutions for UK businesses.
