If you are part of the business landscape in the UK, you know that the space is so lively that it’s constantly changing. As a business owner, it becomes a responsibility to stay ahead of the game and do everything that is required to keep the business running well and thriving. One such way to expand your business and take it to long-term success is to secure a commercial mortgage.
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On this page, we will get you familiar with all the important details of a commercial property mortgage.
What is a Commercial Mortgages?
Different from a residential mortgage, a commercial mortgage is for business owners who are looking for a property for commercial usage. It is a secured loan taken to purchase or develop commercial properties. It can be anything from office buildings, rental spaces, and hotels, to factories and warehouses.
Just keep in mind that it’s all about business – personal use doesn’t usually apply here. Due to its business-oriented nature, criteria can be not so flexible. Lenders often consider risks associated with business operations and will set the bar accordingly.
Why Opt for a Commercial Mortgages?
One of the most compelling reasons to choose a commercial mortgage is the opportunity to own your business premises instead of leasing them. While leasing may seem like a simpler, more straightforward option in the short term, it often comes with ongoing costs and limited control over the property.
When you own a commercial property, you also eliminate the landowner hassle. You have complete control over the property’s use, layout, and any modifications. This helps run your business smoother as now your workspace completely aligns with the business goals and operations.
There’s also asset appreciation, meaning your business can benefit from the potential increase in property value. It will enhance the balance sheet, proving useful for investments or expansions.
If your business doesn’t require the full space, you can rent it out for some additional revenue. Suppose your property has two major spaces, and you are only using half of it, the other half can be rented out to other businesses. Lastly, when you retire, the property can be sold and you can generate a substantial amount for your retirement plans.
Overall, the advantages of a commercial property mortgage are multifold. Opting for one can prove to be a great decision in most cases but if you are feeling unsure, then talking to a commercial mortgage broker will help you understand any associated risks. They can also help you mitigate certain challenges.
Types of Commercial Mortgages
The purpose of your business directly influences the type of commercial mortgage you need to aim for. Generally, commercial mortgages fall into two broad categories.
Owner-occupied commercial mortgage is for those businesses that need the property/premise as the main operational base. For example, you have a growing company in London, and rather than leasing your space, you opt for your own small office to gain stability in a highly competitive market.
An owner-occupied commercial mortgage removes the worry about a landlord raising the rent, or terminating your lease. The mortgage payments often remain stable or reduce over time as you build equity, while also giving you complete customisation freedom.
On the other side, we have commercial investment mortgages which are for businesses looking to purchase a property as an investment to rent it out to other businesses. Note that commercial leases often span several years so it can be a very strong and reliable income stream during the period.
At the same time, one benefit is property appreciation. As your commercial property’s value increases, selling it could lead to a nice profit. Plus, owning one diversifies your investment portfolio.
If both these categories don’t seem suitable for you, you can also consider semi-commercial mortgages. These incorporate both residential and commercial elements. For example, if you are getting a two-floor house, you can use the above floor for your residence and the below could be your retail space, perhaps a cute little bakery or flower shop.
Such a property qualifies for a semi-commercial mortgage, suitable for those who would like their own home and business set up together. However, some lenders may be stringent when it comes to balancing between residential and commercial use.
Using a Commercial Mortgages Calculator
In order to understand how much you would be allowed to borrow, and what your monthly payments shall look like, you can take the help of a commercial mortgage calculator. Such specialised calculators factor in various details such as revenue, liabilities as well as a property value to get an estimate of payments, giving you a complete picture of monthly outgoing.
Note that you should make sure not to overborrow. Borrowing more than your business can comfortably repay can lead to cash flow issues, especially during economic downhills.
Because of the higher risks tied to businesses, interest rates for commercial mortgages tend to be higher than residential ones. For financial stability, a fixed-rate commercial mortgage is ideal. If you’re open to risk, a variable-rate mortgage could save you money as rates may drop with the market.
Key Considerations for a Commercial Mortgages
Business records: Having at least two-three years of accounts will help secure favourable terms.
Credit score: Your business’s credit score will gain you credibility, helping you secure a low interest rate while a poor score limits your options.
Purpose of loan: Being clear and confident about why you need a commercial mortgage not only influences the type of it but also helps you build a strong case in your application.
Personal guarantee: In case of small or new businesses, lenders would prefer a personal guarantee from the directors or owners to reduce risks.
Additional costs: While your mortgage payments deserve the most focus, extra costs can pile up and cause financial strain, so prepare beforehand.
Conclusion
The rewards of a commercial mortgage can be a game changer for your business and financial health in general. However, it is not the easiest task to secure one. It requires more than just a strong application; it demands strategy and expertise. Talking to experienced brokers can help you unlock exclusive products and deals.
UK Mortgage Finder understands the nuances of the commercial lending sector of the UK. Our teams of experts have negotiated better terms on behalf of our massive client base. We can help you leverage tools like a commercial mortgage calculator and give you solutions from the best of the in
