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A commercial mortgage is a loan that is secured by property that is not your primary residence, such as your own business location or one that you rent out. There are two basic categories: business mortgages, which are for owner-occupied properties that you use and work from, and commercial investment mortgages, which are for buy-to-let properties.

Similar to a traditional property purchase loan, you can utilize a commercial mortgage to buy property or land, but the application process is a bit more extensive. You can normally borrow between £50,000 and £40 million, but some lenders will allow you to utilize the equity in another property you own as a deposit instead.

The types of companies that can get commercial mortgages:

In order to apply for a commercial mortgage, you’ll need a company to apply through. Some of these companies are:

  • Limited company (LTD)
  • Limited Liability Partnership (LLP)
  • Trust
  • Offshore company
  • SPV (Special Purpose Vehicle)

It’s also possible to apply for a commercial mortgage in your own name, for example if you’re a sole trader.

How to apply for commercial mortgages:

Employing a specialized broker could make the application process easier and help with making sure that you’re matched with the best lender. Applying for a commercial mortgage is comparable to getting a residential loan on a regular basis. You must first finish and submit the Asset and Liability form, which is typically completed online. The application form for a commercial mortgage will then be asked of you, in which you’ll need to enter details about your company. The property is then valued, after which the solicitors for the lender will then conduct legal due diligence. Finally, the bank will make you a mortgage offer if you are approved.

Some points to consider:

Given the complexity of a business mortgage, it is important to thoroughly explore your options and make sure you can afford the monthly payments. If you have poor credit, it’s usually possible to apply for a business mortgage, but you’ll probably have to pay a high interest rate to cover the risk the lenders are taking. If you default on a mortgage, a secured loan in which the property is used as collateral will most likely result in loss of your property. It’s a good idea to be sure you’ll be able to afford both the deposit and the monthly instalments because the down payment for this type of mortgage can be substantial. The best course of action is often to speak with a broker, who can assist you in locating the highest loan to value ratio (LTV). Lenders may require personal guarantees if you haven’t been trading for very long as they might view this as a sign of high risk.