A mortgage on a commercial property works in much the same way as a residential mortgage on a house or flat. In most cases, you (or your firm) won’t be able to buy the commercial property outright with one of these loans. You will need to table a deposit or put up another property you own (and hold enough equity in) as security. The amount of mortgage you will need is offset against the deposit (or the value of the security property) you have put down, and you will pay off the loan in instalments each month plus the accrued interest, if the mortgage was offered on a repayment basis. If the commercial business mortgage was offered on an interest only basis, you would only pay off the interest each month and settle the loan amount at the end of the term via a repayment vehicle, which the lender will want to see evidence of in advance.
The best way to get a mortgage loan for a commercial property is through an expert broker with whole-of-market access. They can give you bespoke advice on this market sector and connect you with the lender best positioned to help a borrower with your needs and circumstances (or your businesses’ needs and circumstances). Obviously you and/or your business will need to meet the lender’s affordability and eligibility requirements to qualify for commercial mortgage finance.
It typically includes the following steps:
• Find a whole-of-market broker (recommended) so you can be paired with the best lender for your circumstances (and/or your company’s circumstances).
• The borrower fills out an Asset and Liability form to evidence their company’s net worth (calculated by subtracting their liabilities from the value of their assets).
• If a lender is happy with the above, you will be invited to fill out an application form.
• Next the lender will want to know about you or your business’s income and expenditure to give them a clearer picture of affordability.
• They will request three years’ financials to evidence the above.
• The underwriting takes place.
• A valuation is carried out on the property you’re buying (and any properties you have put up as loan security) as well as your business.
• The solicitors carry out their legal due diligence.
• Personal/business bank account statements covering the last three months.
• Trading figures for the last three years.
• Proof of identity (Passport, driving license etc.)
• Proof of address (Driving license, tax bills etc.)
• Lease/tenancy agreements for your business premises.
• A business plan (some lenders require this, especially for smaller businesses)
• Debentures and personal guarantees from the company directors (if you’re making a Limited Company business mortgage application)
• Arrangement fees: Usually due on completion and are typically charged at 1-2% of the loan amount for loans up to £1 million. Small balance mortgages can come with higher arrangement fees.
• Valuation fees: Valuation reports are typically more stringent for commercial purchases than for residential properties and therefore often higher. The exact amount payable is determined on a case-by-case basis but, unlike with residential mortgages, the valuation fees are not usually demanded upfront.
• Broker fees: Most brokers will charge around 1% of the loan amount for arranging the deal, but be wary of deals involving high upfront fees. Brokers should only be paid on success, and the ones we work with will refund any advance charges if they’re unable to arrange a mortgage for you.
• Legal fees: Borrowers are usually required to foot their own legal fees as well as the lender’s and the total cost can vary. They usually start at around £500 per party, but a specialist broker may be able to help you find a more favourable deal.