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Commercial mortgages: a primer

Commercial mortgage tips for start–ups and small businesses.

Securing a commercial mortgage may be the business move you're planning next, but is it the right move, right now?

Many small business owners decide that obtaining a mortgage on a property is a wiser choice than paying rent in the long run. But before you get started, there are a number of things to think about. How do you go about getting a commercial mortgage, what criteria must you and your business meet and what factors should you consider before committing to this loan? These commercial mortgage pointers will help you navigate these and other questions.

What exactly is a commercial mortgage?

In essence, a commercial mortgage is not so different from a residential mortgage. It is a large loan (around 75% of a property’s value) to purchase a property. Just as on a residential mortgage, where the bank or building society takes security from the property you live in, on a commercial mortgage they take security from the premises from which you run your business.

Is a commercial mortgage right for your business?

Although you may like the idea of buying rather than renting, you must consider whether being tied to one property is a good idea for your enterprise. Renting affords you the flexibility to grow, move to a more profitable postcode with ease, or downsize during tougher times. Be wary of buying a property that won’t meet your needs a few years from now.

What are the advantages of a commercial mortgage?

The major advantage of a commercial mortgage, or indeed any mortgage, is that at the end of the loan’s term you will have a solid asset – a property that belongs to you and which you can sell or rent out yourself. Another good point is that your monthly property costs will be more predictable without a landlord, who could decide at any time to raise the rent as they see fit. Predictable, regular costs are good news for anyone who’s trying to stabilise the cash flow.

Which is the best commercial mortgage for my business?

There are many factors that will influence which commercial mortgage is best for your business, not least of which is the size, turnover and profit of the business itself. There are a lot of commercial mortgages on the market, all of which have different interest rates and repayment terms, as well as various criteria to meet. Identifying the correct product for your needs may require the advice of an independent mortgage adviser. Remember too that there may be various fees and administrative charges associated with a commercial mortgage, and that you will need to pay for a solicitor’s services when buying any property.

How can I secure a commercial mortgage?

It’s likely that your business will require a deposit of at least 20% of a property’s value, if not more, so a mortgage provider could consider lending you the remainder of the buying price. Additionally, you will have to prove that your business will be capable of paying off the loan in the long-term.

For some small business owners, a commercial mortgage is a prudent move and one that will only serve to strengthen their enterprise. For others it is safer and wiser to remain in rented premises. Take your time and research carefully before deciding whether a commercial mortgage is right for you.


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