What is a commercial mortgage?

Commercial mortgages, or business mortgages, are usually used by business owners who want to buy property or land for commercial use. 

Similar to residential mortgages, the money is borrowed from a bank or specialist lender and then repaid in monthly instalments over a set term, with interest added on top. The main difference is that with a commercial mortgage, the value of the land or property is usually much larger. 

Swoop is a credit broker and does not provide capital. We work with a range of companies to offer clear comparisons that allow customers to make choices on financial products & services. Swoop may receive a commission, which may vary by product but typically in the form of a fixed percentage of the loan amount. For certain lenders, we do have influence over the interest rate, and this can impact the amount you pay under the agreement.

Commercial mortgages & property finance

Commercial mortgages are often used by business owners who want to buy bigger premises so that they can expand. They might choose to buy their own premises to avoid rising rents or higher maintenance fees. 

However, commercial mortgages are also used by investors who want to buy property to lease to other businesses. A residential property owner might also choose to use a commercial mortgage to buy several properties to rent to tenants.

How can I get a commercial mortgage?

One of the best ways to get a commercial mortgage is to speak to a mortgage broker who will be able to help you find the right deal. You can also apply directly to the lender, but commercial mortgages aren’t as easy as residential mortgages to research yourself online. 

When you apply for a commercial mortgage, similar checks to those for a residential mortgage will be carried out by the lender. For example, the lender will check your affordability, financial health and your business credit record.  

As part of your application, you might need to provide the following documents and information:

  • Two to three months of business bank account statements
  • Assets and liabilities statements
  • Proof of identity and address
  • Lease and/or tenancy agreements
  • Performance figures, both current and projected
  • Three full years of audited certified financial accounts 
  • Details of your partners and directors 

To apply, you will usually need to fill out an online form and submit the appropriate information about your business. You will also need to arrange a property valuation on the premises you are looking to buy. Once the lender has carried out the necessary legal checks and gone through the paperwork, you should then receive a formal mortgage offer (if you’re approved).

What are commercial mortgage terms?

Commercial mortgage terms vary. You might be able to have a commercial mortgage for as little as three years, but terms also stretch up to 25 years. 

The term of your deal will often depend on the size and value of the property, or the size of your deposit. 

How much is a deposit for a commercial mortgage?

Deposit requirements for commercial mortgages are usually much higher than they are for residential mortgages which might only ask for 5% of the property’s value. Commercial mortgage deposit requirements are usually between 20% and 40%. 

The type of business you have can also affect how much deposit you need. If a lender views your business as higher risk, if it’s a restaurant for example, you might be asked for a higher deposit. 

What is a part-commercial mortgage?

A part-commercial mortgage is a mortgage for a property that is half business and half residential. This could be a flat above a shop, for instance. Because this type of property won’t usually qualify for a standard residential or commercial mortgage, you’ll need to apply for a completely separate mortgage product.

You’re more likely to get a competitive mortgage rate if you have experience in running commercial properties or you have owned more than one buy-to-let property for more than two years. 

What are the benefits of using a commercial mortgage broker?

A commercial mortgage broker can help you compare the different commercial mortgage deals available so that you can find the ones you’re most likely to qualify for. Mortgage brokers can also advise on how long lenders take to process applications and can help guide you through your application, making sure you provide the correct information.

At Swoop, we can support a business in the following ways:

  • Property purchases
  • Purchasing existing trading business – such a as trading hotel or car home
  • Business expansion
  • Property development
  • Property investments
  • Business refurbishment

We have access to lenders that the general public are not aware of as some UK lenders only deal with intermediaries. This means the only way you can access them is through Swoop. Register with Swoop today to get started. 

Bear in mind that many brokers charge a fee. Those that don’t will typically only use lenders that pay them the highest ‘introducer fee’ and might not be fully transparent about this. At Swoop, we believe in putting our customers first, as well as full disclosure and transparency. Our standard arrangement fee is 1.5% of the loan amount payable on a success only basis.

However, each deal is individually priced by our experienced Commercial Finance Managers who will take the time to understand your requirements and tailor a solution with bespoke pricing. Contact us today to discuss your requirements.  

What to consider before applying for a commercial mortgage

One of the most important points to consider before applying for a commercial mortgage is whether you can afford to repay it. You’ll need to factor in any existing loan repayments before you agree to a commercial mortgage so that you can work out what will be affordable. 

Keep in mind that a commercial mortgage is a type of secured loan which means the property is used as collateral against the loan. Failing to keep up with your monthly mortgage repayments could result in the lender repossessing the property and also damage your credit rating.  

If you have a poor business credit rating or a lack of business credit history, lenders might view you as higher risk. For this reason, you might have fewer lenders to choose from and those that are willing to offer you a commercial mortgage might charge higher interest rates. Some lenders might look at your personal credit score instead, and they might require you to sign a personal guarantee. This means that you will be personally responsible for paying off all or part of the loan if your business is unable to. 

Finally, also remember to factor in fees. Commercial mortgage fees can include the following:

  • Arrangement fees: These are paid to the lender for arranging the loan. Fees can vary between 0.5% to 2.5% of the amount borrowed. If you choose to add the fee to your mortgage, you’ll be paying interest on this amount over the mortgage term. 
  • Valuation fees: Before your mortgage can be approved, the lender will arrange for a valuer to visit the property and state how much it is worth. Fees can start from around £500 for a straightforward valuation.
  • Legal costs: You will need to pay both your own legal fees and that of the lender. They can start from around £500 each, but will vary depending on the complexity of the work involved. Legal fees might include insurance, site surveys and preparing legal documents.
  • Broker fees: As mentioned, if you’re using a mortgage broker, you’ll also need to factor in their costs. 

Try our commercial mortgage calculator today to find out if it’s right for you.

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