Commercial mortgages are used to purchase land or property for commercial reasons. Money is borrowed and secured against a property, just like a regular residential mortgage.
They can also be used to extend an existing firm or to build a residential or commercial property. They tend to be the primary resource for financing any business development strategy by securing a business to a property.
What documentation do I need to apply for a commercial mortgage?
A lender would do many similar tests to those used in a residential mortgage when examining a business mortgage application, such as affordability and the applicant’s financial health. This will very certainly include a business credit check to determine how the company manages its present debts and financial obligations, as well as any pending difficulties.
The lender will also want to know if the business is profitable, thus at least three months of business bank account statements are required. It is also necessary to provide proof of identity and address, as well as any lease or rental agreements. You may also be required to present a company projection to demonstrate that you have a realistic financial plan.
Mortgage Application Process
- The mortgage application process varies by lender, but typical procedures include:
- Filling out an online commercial mortgage application form.
- Providing information about your company.
- Obtaining a property valuation on the property you desire to purchase.
- Waiting for the lender to complete all of the required paperwork and legal checks.
- Once authorized, your bank will make you a formal mortgage offer.
What are the costs of applying for a commercial mortgage?
When negotiating a commercial company mortgage, you will be charged a variety of costs.
Arrangement fees: These are normally added to the loan after it is accepted, but some lenders may insist on paying them in advance to protect themselves if the loan is not granted. Arrangement fees vary, but for loans up to £1 million, they are typically 1-2 percent of the loan amount.
Broker costs: If you elect to engage a specialized commercial mortgage broker to advise you on what loans are available for your business, you will have to pay broker fees. This is normally roughly 1% of the loan amount.
Valuation fees: Before the mortgage is granted, a valuer appointed by the lender will visit the property and provide an opinion on its value. Value fees can start at around £500 but will rise as the valuation grows larger or more complicated.
Legal fees: With commercial mortgages, borrowers must pay both their own legal fees and the lender’s legal fees. Because of the variety of business property available, your legal fees will vary based on the complexity of the work involved. Insurance, site evaluations, and the creation of legal documents are examples of such services.
If interest is imposed on the amount increased, adding fees to a mortgage rather than paying them beforehand will be the more expensive alternative.
Is a business mortgage deposit required?
A commercial mortgage will almost probably require a deposit, which will most likely be a far larger percentage of the total mortgage than residential mortgages, which can be obtained with as little as a 5% deposit. Commercial mortgage deposits typically range between 20 and 40 percent of the loan amount. If you need to take out a separate loan to cover the cost of the deposit, the affordability checks will include the deposit loan repayments to ensure that you can meet all of your financial obligations.
What other commercial mortgage options are there?
If you want to acquire commercial property to rent to another company rather than utilize it yourself, you should look into securing a commercial buy-to-let mortgage.
What alternatives exist to a business mortgage?
If for any reason, you determine that a commercial mortgage is not the best option for your company, you have several additional financing options:
Depending on your property demands, you may be able to satisfy them with a business or personal loan, which could be a simpler solution. A short-term loan business loan might assist you in borrowing money without making a long-term commitment.