Commercial mortgages

From car dealerships and restaurants – E1 can help.

Loans on offer for a wide range of business types

If you have decided to take out a commercial loan, congratulations. This means you are either:

  1. Looking to buy premises for your business
  2. Hoping to fund an additional investment against an asset you already hold.

However, before you start your search for a lender, there are probably a few questions that you may need to know the answer to. To help you down the path to commercial property ownership, we’ve created a short list of the most FAQs and their answers.

recent commercial lending portfolio for a chemical laboratory near Bristol

What is a commercial mortgage?

This loan is one that is secured against a property that you will not be living in. As mentioned above, two main reasons for taking out a commercial loan exist.

You are hoping to use the property as a business.

You are interested in financing a new investment against a current asset.

Typically, business owners and single investors choose a commercial when they are in need of a substantial amount of money. When the amount needed is£25,000 or less, business loans are the preferred option. When the amount needed exceeds £25,000, commercial property is often used to secure the loan.

Are commercial mortgages and residential mortgages the same thing?

In many ways, they are alike. For example, both loans are secured against a property and must be repaid within 25 years. At the same time, they are substantial financial commitments that are one of the easiest ways to attain a significant amount of capital. With that being said, there are quite a few differences between the two. For example, commercial loans:

Increased flexibility: Commercial loan rates tend to vary, depending on the business’ age, location, size, accounts, and more. On the other hand, residential rates tend to be more rigid. Learn more about residential mortgages and rates on this website.

Decreased regulation: While residential loans are regulated by the Financial Conduct Authority (FCA), commercial loans are not. This means that rates can be calculated differently from one case to case.

Increased rates: Commercial mortgage rates tend to be higher because residential lending is much more competitive.

Lower loan to value (LTV): With a residential mortgage, you can borrow up to 95% of a property. Commercial mortgages have much lower LTV rates, meaning that securing one will require a deposit of 25% at a minimum.

More information: While residential mortgage lenders need a minimal amount of personal income information, commercial mortgage lenders will require a comprehensive look at the owners’ financial records and the company’s accounts.

What can I expect in terms of commercial mortgage rates?

Although some individuals will be able to secure a fixed rate for a specific number of years, most will end up with a variable interest rate. Variable rates are usually set as a “tracker” percentage over a base rate (LIBOR).

What information do lenders consider when processing commercial mortgages?

To get the most competitive interest rates from a commercial mortgage, you’ll need to prove that your business is as financially secure as possible. In simple terms, lenders prefer safe investments. This is why the less risk your investment poses, the better the rate you’ll be offered. One of the most successful ways of lowering a lender’s risk is by having a substantial deposit to put down. If this isn’t possible, there are a few other things you can do to lower your rates.

Some of the top things lenders will look at include:

  1. The past two years’ audited profit and loss accounts
  2. Key stakeholders’ credit status
  3. Forecasted profits and losses for a minimum of the next three year
  4. Any personal investments that may be involved in the business
  5. A business plan that describes how you plan to repay the loan

Are there different types of commercial mortgages?

Yes, there are several commercial mortgages to choose from. Including

Owner occupied commercial mortgages: More common than other commercial mortgages, this type of mortgages is used when a business is looking to own its own commercial property. This type of mortgage may cover:

  1. Offices
  2. Industrial areas including factories, business yards
  3. Retail and shop spaces

Investment commercial mortgages: Often used by individual investors, this type of mortgage allows a business to own the property they will be working in. They may also be used to purchase a property before renting it out for a profit. This type of mortgage is ideal for:

  1. Industrial areas
  2. Retail areas
  3. Offices
  4. Single-resident properties

David at E1.