A Comprehensive Guide to a Commercial Property Mortgage

Whether you are an aspiring entrepreneur looking to purchase new business premises or an investor interested in developing your portfolio, understanding what a commercial property mortgage is, is crucial for achieving your goals.

In this guide, we will walk you through the ins and outs of commercial property mortgages, providing you with valuable insights into how they work and how to secure one, empowering you to make informed decisions and navigate the process with confidence.

What is a Commercial mortgage?

A commercial mortgage is money that is borrowed and secured on a property or land which is used for business purposes. It can be used to purchase a business property for your own business use, to rent out, when purchasing a company with property or for unlocking the equity in an already owned property. 

Additionally, a commercial property mortgage can also be used to expand an existing business. A commercial property mortgage is normally a long-term loan – a lender will typically lend up to 70% of the property’s value. 

Benefits of a Commercial Mortgage

A commercial mortgage offers several benefits for businesses seeking financing for their property or land used for business purposes. Here are some of the main advantages: 

• It is cheaper than renting 
• It can be used to release capital for investment
• Consolidate business debts
• It can be used to purchase new equipment 
• Expand trading 
• Option for sub-letting

How do commercial mortgages work?

Commercial Mortgages function similarly to residential mortgages but with some differences. Here is an overview of how they work:

• Property Assessment – Your lender will evaluate the commercial property’s value and income potential.
• Loan-to-Value (LTV) Ratio – Lenders will typically offer up to 70% of the property’s value as a loan.
• Interest Rates and Loan Term – Rates can be fixed or variable, and loan terms range from 5 to 30 years. 
• Repayment Options – Borrowers can choose interest-only or capital and interest repayments. 
• Affordability Assessment – Lenders assess the borrower’s financial situation and business performance.
• Legal Process & Security – The mortgage involves property valuation, legal documentation, and the property serves as security.

It’s important to remember that Commercial mortgage terms can vary, so consulting a mortgage advisor is always advisable. 

How to get a Commercial Mortgage?

Before you can put in a commercial mortgage application with a reputable lender, it is best practice to collect the necessary documentation ahead of time. You should have the following documents to hand:

• Bank statements for the last 3 months
• Trading figures for the last 3 years
• Proof of identity and address
• Lease and/or tenancy agreement
• Financial projections
• Details of all directors
• Asset and liability statements

Once you have the necessary documents you will then need to approach a lender. We would recommend researching the different lenders available to ensure they are reputable. Once you have decided on your lender, you will follow their process of securing your commercial mortgage. 

How can Taylor Bracewell’s Commercial Property team help?

Navigating the complex world of commercial mortgages, our experienced commercial property team is here to assist you every step of the way. Whilst they are unable to advise on mortgages directly, they have experience in providing comprehensive guidance on the entire selling and buying process of commercial premises, including any agreements or leases involved and in dealing with all the paperwork required by the mortgage lender.

Our Commercial Property team can offer valuable insights, ensuring you make informed decisions and approach the process with confidence. With their assistance, you can navigate the intricacies of commercial property transactions. The team can be reached by calling 0114 272 1884 for Sheffield or 01302 341 414 for Doncaster. Alternatively, you can fill out our online enquiry form and a member of the team will contact you as soon as possible.