If you are in business and wish to borrow money you may wish to obtain mortgage facilities secured against your business premises. Although this type of arrangement is similar to the mortgage that you take out to purchase your house, there are certain differences, which can make a commercial mortgage somewhat more difficult to obtain. There are also likely to be different terms and conditions that apply to your commercial mortgage. In this article we explain commercial mortgages and provide an overview of the process that is involved in securing a commercial mortgage for your business.
What is a Commercial Mortgage?
In simple terms, a commercial mortgage is typically a loan that is secured against a property that is not your own domestic residence. Buy to let mortgages, therefore, fall within the definition of a commercial mortgage. For a business, the need to arrange a commercial mortgage will frequently arise when the extent of the company’s required borrowing from the bank reaches a level where the bank requires some form of security to minimise the risk of the company defaulting in payment. Commercial mortgages can be costly to set up compared to domestic mortgages and many lenders set out a minimum borrowing amount because of this. Commercial mortgages can be taken out either to fund the purchase of a new property or to secure borrowings against a commercial property that the business already owns. It is possible to obtain a commercial mortgage against leasehold properties but only on those that have a lengthy un-expired term. The length of a commercial mortgage might differ substantially from that of a standard domestic mortgage, which tends to be around 25 years. Commercial mortgages can cover much shorter term borrowing, for periods of weeks to months but can also secure longer term borrowing for up to 25 years. Although it is possible to find a fixed rate commercial mortgage, most loans of this type are likely to be in some form of variable rate.
How to Obtain a Commercial Mortgage
Because of their potential cost, relative complexity and difficulty to access, many business owners obtain their commercial mortgage through a mortgage broker. Most experienced mortgage brokers have financial and commercial contacts who are well equipped to provide the best deal for your business. Your broker will be able to advise you on the setting up fees of an individual lender, including legal and valuation fees, whether you will be able to obtain a fixed rate or variable rate loan, the length of the mortgage, the amount that you will be able to borrow, the amount that you will be required to contribute to the mortgage and the likely length of the mortgage. The broker is also likely to charge a setting up fee for arranging the commercial mortgage.
Commercial mortgages can be an invaluable way of providing finance for a business. Commercial mortgages, obtained with the assistance of a specialist mortgage broker, are available at competitive rates both for short term and long term financing to secure a wide range of commercial borrowing requirements.