Commercial Mortgages

Have you always wanted to own a pub or restaurant? Do you need to relocate an office or factory and want to own the premises? If so a commercial mortgage may be the answer to raising the extra funds you need. Below is a selection of the types of commercial mortgage that may help fund your business:-

  • Leisure property industry mortgage
  • Professional property mortgage
  • Office or industrial property mortgage
  • Retail or Commercial property mortgage
  • Care home and specialist property mortgage

Semi-commercial properties involving a residential property element will be treated by financial institutions purely as a commercial mortgage proposition. A shop with a flat above it or a residential property that has partly been converted into a public house will need a commercial mortgage not a standard mortgage..

Agricultural mortgages to fund farm and landowners are a more specialist subject.

Advantages of buying business premises

  • Mortgage repayments are likely to be similar to a rental payment on the same property. Commercial mortgages tend to be individually priced.
  • Your business wont be exposed to any sudden rent increases
  • Free space may be sublet reducing your monthly repayments but you may require permission from your lender so check when negotiating your mortgage
  • Interest payments on a commercial mortgage are tax-deductible. Normal
  • Household mortgages are not tax deductible.
  • Gains in value of the property will increase shareholders or owners capital and business worth.
  • As your business grows, you may be able to extend your existing premises, avoiding relocation costs

Disadvantages of buying business premises

  • A substantial deposit of at least 25% will be needed and that may be money needed for more important business purposes.
  • Your business needs to find the cash to make regular repayments.
  • If you own premises, you may find it harder to relocate your business, because selling business premises is not always easy.
  • If you rent, you may be able to negotiate to end your rental agreement, or to find another organisation to take over your tenancy.
  • If you have a variable rate mortgage, you are exposed to increases in interest rates.
  • Owning a property means you’ll be responsible for maintenance, fixtures and fittings, insurance, decoration and security.
  • Any fall in the value of the property will decrease your capital.
  • Mortgages are usually for 15 years or more and the property itself is at risk if payments are not made on time.

What Interest Rates and Other Issues Need Considering?

  • · With regard to rates a benchmark to consider would be Bank Base Rate + 2% to 3.5%. Evidence of trading accounts and a business proposal will be needed to secure competitive funding.
  • · Most banks and building societies offer commercial mortgages, but you must satisfy their criteria.
  • · Most lenders require a positive personal credit rating and clear evidence that your business is creditworthy.
  • · Most lenders will apply a loan-to-value ratio (the loan amount divided by the current market value of the property expressed as a percentage) and will expect you to invest a proportion of your own money in the purchase.
  • · The lender’s decision will also depend on your current business circumstances. A commercial lender will expect your business to be stable and profitable.
  • · Check that any lender does not impose restrictions on the property.

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