Obtaining a business mortgage is a significant milestone for any entrepreneur in the UK aiming to purchase their own property. Whether your interest lies in a shop front, warehouse, office space, retail outlet, or restaurant, understanding what’s involved can empower you to make good choices. This guide will lead you through the fundamental aspects of business mortgages and the steps involved in the application process.
Understanding Mortgages for Business
A mortgage for business, typically called a commecial mortgage, is a type of loan where the debt is secured by a business property. This property could be the bustling hub of a company’s HQ or a small shop in a local parade.
Wondering what sets a commercial mortgage apart from a residential mortgage? The key difference lies in the property itself. Residential mortgages are loans taken out by individuals or families to purchase a home. In contrast, commercial mortgages are loans taken out by businesses or landlords to acquire property that will enhance their business operations.
Commercial mortgages can be taken out directly in the business name, whether you’re a sole trader, partnership, or Limited Company. Alternatively, they can be taken out under another entity. For instance, we often assist directors in buying a property in their personal name and then leasing it to their Limited Company.
Property Types
Commercial property types are incredibly varied. Just think about how many businesses require premises to operate – and then double or triple that number. You can get a mortgage for a business operating from any property, including:
- Office Buildings: From a small office with ten desks to a full tower block.
- Retail Spaces: Typically units like shops and cafes on a high street.
- Industrial Units: This would include warehouse and distribution centres.
- Care Homes: Increasingly important in the UK, housing the elderly and others in need of care.
- Restaurants:Â Whether it’s a local family restaurant, a takeaway or a chain of city-centre outlets.
Business Mortgage Eligibility
Wondering if you qualify for a mortgage for your business? Let’s break it down. Lenders have certain criteria to make sure they’re lending to businesses that can manage the mortgage. Here are some key factors they look at:
- Credit History: A good personal and business credit score is important. Lenders will check your credit history to see if you’re reliable. If you’ve had some bumps in the road, you’ll need to explain these and show that you can meet your mortgage commitments.
- Deposit: Usually, you’ll need to put down a deposit of 25-40% of the property’s value. This can vary depending on the property type and the lender. This would typically be from personal or business savings, refinancing another property or sometimes a gift from a family member.
- Business Financials: Lenders will want to see proof of your business’s financial performance. Two or three sets of filed accounts shows the lender the trajectory your business is on. Rule of thumb is that your profit will need to exceed the new mortgage repayment, so keep that in mind.
- Experience: Showing that you have experience in your industry can really improve your chances of success. If you’ve been trading for more than 2 years, the process will be much smoother for you.
You can get a rough idea of how much you could borrow based on your business profits using our business loan calculator.
Is It Hard to Get a Mortgage for Business?
Getting a mortgage for business can seem daunting, but it’s definitely achievable with the right approach. While commercial mortgages are more complex than buy-to-let mortgages, this doesn’t mean they’re out of reach.
Business mortgages often have higher interest rates compared to residential mortgages due to the perceived higher risk. However, the upside is you don’t need to pay away rent to a landlord – instead you are building value for yourself and hopefully over time the value of the property will increase.
The application process can be more complex and time-consuming, requiring detailed financial documentation and property valuations. For this reason there is a lot of sense in working with a commercial finance broker. Make sure they are experienced and come recommended so that they can help you navigate the various twists and turns along the way.
Getting the Right Support
Getting a mortgage for a business property can be simplified when you have the right help. The easiest way is to work with a commercial mortgage broker. We can support you on the journey and you improve your chances of finding the right deal for your business. Our team have in-depth experience in SME finance and will support you all the way through the process.