Commercial Mortgages
A Complete Guide
What is a commercial mortgage?
A commercial mortgage is a type of loan used to purchase, refinance, or raise funds against a property that is used for business or investment purposes. Unlike a standard residential mortgage, which is designed for buying a home, a commercial mortgage is specifically intended for properties that generate income or support business activities.
Commercial mortgages can be used for a wide range of property types, including offices, shops and retail units, industrial buildings, warehouses, care homes, hotels and hospitality premises, mixed-use properties, and commercial investment properties.
Like other secured forms of lending, a commercial mortgage is secured against the property itself. This means the property acts as security for the lender, providing reassurance that the loan is backed by an asset.
How does a commercial mortgage work?
A commercial mortgage works in a similar way to other secured loans. A lender provides funds to help purchase or refinance a commercial property, and the borrower repays the loan over an agreed period through regular repayments.
When considering an application, lenders will look at a range of factors to understand the level of risk and ensure the finance is suitable. This can include the value and type of the property, the purpose of the loan, the strength of the business or investment opportunity, the borrower’s financial position, and any income the property is expected to generate.
Every commercial mortgage application is assessed individually, as no two businesses, investors, or properties are the same. The right lending solution will depend on the specific circumstances, plans, and financial position of the borrower.
What can a commercial mortgage be used for?
Buying business premises
Many businesses choose to purchase their own premises rather than rent. Owning a commercial property can provide greater control over costs and allow businesses to build an asset over time.
A commercial mortgage can help fund the purchase of premises such as offices, shops, workshops, or warehouses.
Refinancing an existing commercial property
Business owners and investors may choose to refinance an existing commercial mortgage to secure more suitable terms, release capital, or support future plans.
For example, releasing equity from a commercial property could provide funds for expansion, improvements, or new investments.
Purchasing an investment property
Commercial property can be an attractive option for investors looking to generate rental income or build a property portfolio.
A commercial mortgage can help investors purchase properties that are leased to businesses or other organisations.
Expanding a business
As businesses grow, they may need larger premises or additional locations.
A commercial mortgage can help support expansion plans by providing funding to acquire suitable commercial space.
What types of commercial properties can be financed?
Commercial mortgages can cover a wide range of property types, although lenders will consider the risks associated with each one.
Common examples include:
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Office buildings can be financed for businesses looking to occupy their own premises or investors purchasing office space to let.
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Shops and other retail premises are commonly purchased using commercial mortgages, whether for owner-occupation or investment purposes.
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Industrial properties, storage facilities, and warehouses are often used by businesses requiring operational space.
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Some buildings combine residential and commercial elements, such as flats above shops. These properties may require specialist lending depending on the circumstances.
How much can you borrow with a commercial mortgage?
The amount you can borrow depends on several factors, including:
The value of the propertyThe deposit or equity availableThe property’s income potentialYour business financesYour overall borrowing position
Commercial mortgages often require a larger deposit compared with residential mortgages because commercial property lending can involve additional risks.
The exact amount available will depend on the lender and the details of your application.
How long does a commercial mortgage last?
Commercial mortgages are typically arranged over a number of years, although the length of the loan can vary depending on the lender, borrower, and circumstances.
Unlike residential mortgages, commercial mortgage terms are often more tailored to the individual situation.
Some borrowers may choose a longer repayment period to spread costs, while others may prefer shorter terms depending on their plans.
What do lenders look at when applying for a commercial mortgage?
Commercial mortgage applications are usually assessed differently from residential mortgage applications.
Lenders may consider:
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For owner-occupied properties, lenders may review factors such as turnover, profitability, and future business plans.
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For investment properties, the rental income generated by the property can be an important consideration.
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The location, condition, value, and type of commercial property all play a role in the lender’s decision.
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For investors and business owners, lenders may also consider your experience, strategy, and how the property fits into your wider plans.
What are the costs involved with a commercial mortgage?
Interest paymentsArrangement feesValuation costLegal feesBroker feesOther costsAs with any form of borrowing, there are costs to consider alongside the loan itself.
These may include:
What should you consider before applying?
Before taking out a commercial mortgage, it is important to think about:
Why you need the financeHow affordable the repayments will beThe long-term plans for the propertyThe risks involvedIf the property supports your business/ investment goals
Taking professional advice can help you understand the options available and identify the most suitable approach.
What are the benefits of a commercial mortgage?
Owning rather than rentingPurchasing your own premises can provide more control over your business location removing reliance on a landlord.
Flexible optionsCommercial mortgages can often be structured around the specific needs of the borrower and property.
Supporting growthAccess to commercial property finance can help businesses expand, improve operations, or invest in new opportunities.
Building long-term valueProperty ownership can allow businesses and investors to build an asset over time.
How We Can Help
Choosing the right commercial mortgage can feel complex, especially when every business and property situation is different.
Whether you are purchasing your first commercial property, looking to refinance an existing loan, expanding your business premises, or growing a property investment portfolio, our experienced team can help you understand your options.
We take the time to understand your plans, assess your requirements, and help you explore suitable commercial mortgage solutions that fit your circumstances.
Speak to a Specialist
Speaking with one of our advisors can help you understand how much you may be able to borrow, what options are available, and the steps involved in securing the right finance.
If you are considering a commercial mortgage, get in touch with our team today to discuss your requirements and find out how we can help you move forward.