Here at Newable Finance, we have access to a range of financial solutions to help you to grow your business. One such solution is commercial mortgages.
What is a commercial mortgage?
A commercial mortgage is a mortgage taken out to facilitate the purchase of or refinance commercial property which is to be owned and occupied by a business for their main trading purpose.
There are two basic types of commercial mortgage: an owner-occupier mortgage and a commercial investment mortgage.
An owner-occupier mortgage, also known as a business mortgage, is utilised when a property is being purchased for the buyer’s own business operations. In other words, it’s the mortgage you’d take out if you plan to use the property for your own business activities.
A commercial investment mortgage, on the other hand, is designed for individuals and companies who intend to generate income by renting out the property. It’s commonly used for properties that are not for the buyer’s own business use but rather for investment purposes.
Who can get a commercial mortgage?
Commercial mortgages are specifically designed for businesses and investors to purchase or refinance commercial properties.
Commercial mortgages are typically available to business entities, including corporations, partnerships, limited liability companies (LLCs), and sole proprietorships. These entities can use the loan to acquire properties such as office buildings, retail spaces, warehouses, or industrial facilities.
Real estate investors and property developers seeking to buy or develop commercial properties can also apply for commercial mortgages. Whether you’re looking to purchase an income-generating property or develop a new project, a commercial mortgage can be a suitable financing option.
Borrowers typically need to make a substantial down payment, often ranging from 20% to 30% of the property’s purchase price. The exact percentage depends on the lender, the borrower’s financial profile, and the property type.
Lenders evaluate the creditworthiness of the borrower. A strong credit history, demonstrated financial stability, and a good debt-to-income ratio are essential. Lenders may also consider the borrower’s experience in managing commercial properties.
Lenders also assess the financial health of the business. They may review income statements, balance sheets, and tax returns. A stable business with consistent cash flow enhances the chances of approval.
Commercial mortgages have varying terms, including interest rates, repayment periods, and amortisation schedules. Borrowers should compare offers from different lenders to find the most favourable terms.
What can a commercial mortgage be used for?
Commercial mortgages cover a wide range of properties, including office buildings, retail centres, hotels, multifamily housing, and industrial spaces. The property’s income potential, location, and condition play a role in the approval process.
Commercial mortgages differ from residential mortgages, and the eligibility criteria are specific to commercial properties. Consulting with a financial advisor or a commercial mortgage specialist can provide personalised guidance based on your unique situation.
What are the benefits of commercial mortgages?
- Capital Release: By taking out a commercial mortgage, a business can release capital that can be used for investment and growth in the business. This additional funding can help with expanding, renovating, or purchasing equipment.
- Debt Consolidation: Commercial mortgages provide an avenue for consolidating various business debts. Instead of juggling multiple loans with different terms, interest rates, and payment schedules, a commercial mortgage allows you to combine these obligations into a single, manageable loan. By consolidating, you simplify your financial landscape, making it easier to track payments and manage cash flow.
- Cost-Effective: In many cases, a commercial mortgage may prove more cost-effective than renting a property. Rather than paying rent, you accumulate ownership equity by possessing the premises. Furthermore, the interest paid on a commercial mortgage is eligible for tax deduction. Also, commercial mortgages typically offer lower interest rates compared to other unsecured borrowing options and business loans.
Commercial mortgages are a powerful tool for businesses and investors seeking to acquire or expand their commercial real estate portfolio. Understanding the nuances of commercial mortgages is essential for making informed decisions. If you’re considering one, consult with one of our experienced advisors to explore your options.
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For over 4 decades, Newable has been supporting thousands of businesses every year through the provision of Money, Advice and Workspace. An employee-owned business with a commitment to creating positive impact in all that we do, our team are on hand to help your business today.
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* If you do not keep up repayments on a buy-to-let mortgage, the lender may repossess the property or appoint a receiver of rent.