Applying for a Commercial Mortgage - What You Need to Know

Wesley Ranger • 16 July 2020

Starting a business can be financially demanding, especially if you do not have a property to use. Without enough money to buy a land or put up a building, you cannot start your dream restaurant or upgrade your office space or store. However, that does not mean that it is impossible to achieve. In case you do not have the funds you need, a commercial mortgage is one option you can consider.

What is a Commercial Mortgage?

A commercial mortgage is a mortgage option given to commercial properties, such as shopping centres, industrial warehouses, office buildings, and more. It is commonly a long-term loan that provides cash to acquire, redevelop, or refinance a commercial property.

The loan size for a commercial mortgage starts from £25,000 to any amount needed. In this type of mortgage, there is no maximum loan size. The loan term usually starts for five years and can last up to 30 years.

Loan Requirements and Details

Type of Commercial Properties and Collaterals

Any commercial property can be considered for this loan type. As security, commercial mortgages accept residential property, land, offices, care homes, pubs and bars, restaurants, hotels, guest houses, retail premises, business parks, warehouses, and factories, to name a few.

Who Can Borrow

In terms of borrowers, individuals, partnerships, offshore companies, limited companies, LLP, and other company structures are allowed to borrow money. That is as long as they are within the age limit of 18 years old to 75 years old. For borrowers above the age limit, considerations can be made, but it will be a special case to be discussed with an adviser.

Income and Credit Score

You need to submit at least two years’ worth of accounts before you can apply for a commercial mortgage. Like other loans, the borrower’s credit history will also play a huge role in decision making. In general, a borrower with a clean credit will have a better approval rate, but as long as you are not bankrupt, you can still apply for a commercial mortgage.

Keep in mind, however, that as your level of adverse credit increases, your interest rate and loan-to-value will also be affected.

Commercial Mortgages vs. Residential Mortgages

Nowadays, you can process a residential mortgage quickly through an automated system. However, this method does not apply to commercial mortgages. Since every business operates differently, commercial mortgage underwriters need to manually examine all the business aspects with an open and flexible mind before they come up with an agreement.

For example, one business might present a small profit in papers, but they can also have promising reinvestment that may potentially grow in no time. Studying all the possibilities helps the lender come up with the best deal for the client.

A meeting is usually set before you get your loan assessed and offered, and it has three objectives:

To understand what your business is about
To personally know you
To understand what you are trying to achieve

Make a good impression during this set meeting. Show the lender how confident you are about your business. Applying for this loan is like a business deal. You need to sell yourself and show them why you are a good applicant. More importantly, let them understand your vision and how big of a difference the loan would bring to your business and beyond.

Conclusion

Before deciding that commercial mortgage is what you need, seek the advice of your mortgage broker. They can help you understand whether it is the best solution for you and whether you are getting the best deal possible. Applying for a commercial mortgage should not be scary at all. As long as you know what you are applying for, you fully understand your business, and you are confident of the things you can do once your loan is approved, you would have a good chance of getting accepted.

For any questions regarding commercial mortgage, feel free to contact our financial advisors in Worthing, UK. We are an independent mortgage broker that helps our clients find the right and beneficial financial results to meet their objectives!

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