Commercial Mortgages

A commercial mortgage is an effective and flexible method of financing the purchase of business premises and / or land.

Key Features

A commercial mortgage is a form of commercial loan. The lender has a legal claim over the property until the loan has been repaid in full. Although the lender is entitled to an interest return on the amount loaned, they are only entitled to a percentage of ownership if you default on repayment.

At Simply Business we are able to offer commercial mortgage quotes based on fixed and variable interest rates for:

Owner occupied premises
Purchase of new businesses and premises
Commercial investment
Development
Buy to let

Who is it for?

Based on our broad panel of commercial mortgage lenders and brokers, we are able to offer quotes and information to a wide cross section of businesses:

Self employed
Sole traders
Limited companies
Partnerships
...and many more

Benefits

Simple and effective cash flow management - a payment schedule will be arranged in advance with your lender, facilitating a business planning process and general cash flow management
Ownership - once repaid in full, your business retains the benefits of ownership and also possible gain from an appreciation in value of the property
Optimised financial leverage - with a commercial mortgage, your business will have the opportunity to focus on more important cash flow issues
Tax advantage - as the interest payments are tax deductible and are made with pre-tax money, your business will benefit from tax advantages of a commercial mortgage

Compare Commercial Mortgage Quotes

Things to watch out for

Legal and professional fees - as part of the property purchase process you will be required to pay various legal and professional fees. Ensure that you shop around to obtain the best possible deal.
Grace period - you may be able to negotiate a "grace period" for your repayments. Meaning that although your payment may be due on the 1st day of the month, the lender will not deem it late until the 5th.
Defaults - you may be asked to agree to a number of scenarios that will represent a default on your mortgage, including: late payment, bankruptcy, insolvency and breach of any clauses included in the mortgage agreement.
Collateral - your business will be required to put forward a degree of collateral. If you default on the mortgage, it may be possible for the lender to take charge of the property (or other collateral) and sell it to recoup monies owed. Once repayment is complete, the lender is required to fulfil government records acknowledging this.

Before you finalise your purchase and ownership of the property passes to you, you will incur several closing costs above and beyond the cost of the property. Normal expenses to be paid at 'closing' are title insurance, the site survey fee and various fees for preparing the legal documents.

What are the next steps?

Decide on your property requirements
Thorough research of the market sector that you investing in could save you money in the long run
Get quotes and check the affordability of repayments
If you suspect your credit history might be less than ideal, it may be advantageous to try a commercial mortgage broker
Speak with a variety of lenders and decide on the best possible deal that is available to you and your business
Get independent advice from an IFA

Compare Quotes

Compare, Decide, Buy

Frequently asked questions

Over what period is a commercial mortgage typically repaid?

Commercial mortgages tend to be repaid over a shorter period than residential mortgages. Typically, a commercial mortgage is repaid within 20 years.

How much do I need for a deposit?

Traditional lenders will usually view mortgages with larger deposits as a more secure loan. In some case you may be able to negotiate a deposit of around 5%, however, in the majority of cases between 20% - 30% of the purchase price is required as a down payment. Your business may have to pay a higher interest charge on the loan to compensate for a smaller deposit.

Who is responsible for repaying the mortgage?

This will depend on the legal structure of your business. For example, if you are a sole trader, responsibility rests solely with you. For partnerships, the partners involved are jointly and individually responsible.

Glossary

Asset - Any item of economic value owned by you or your corporation, especially that which could be converted to cash.

Bank Base Rate - The minimum interest rate that the bank will charge you for your loan.

Collateral - Asset pledged by a borrower to secure mortgage. The asset is subject to seizure in the event of default.

Discount Points - Type of fee that you pay to the lender. One point is equal to one percent of the of the loan amount.

Down Payment - Part of the purchase price that the buyer pays in cash and does not finance with a mortgage.

Endowment - A fund owned by an individual that is to be used for a specific purpose.

Fixed Rate - The interest rate (i.e. the percentage) applied to the outstanding principal remains constant throughout the life of the loan.

Lender - A financial entity that makes funds available to others to borrow.

LIBOR - London Inter-Bank Offer Rate is the interest rate that the largest international banks charge each other for loans.

Lien - A legal claim against an asset that is used to secure a mortgage. To sell the property, the lien must be paid.

Principal - The amount borrowed from the lender.

Outstanding Principal - The amount borrowed from the lender that remains unpaid (this excludes interest outstanding).

Recourse Mortgage - A mortgage for which another company (usually the parent) is responsible for payments if the original borrower defaults on the mortgage.

Repayment Schedule - A listing of the amount of principal and interest, due dates and balance after payment for a given mortgage.

Terms - The specific condition and details of an agreement or contract.

Variable Rate - The interest rate (i.e. the percentage) applied on the outstanding principal amount fluctuates from period to period.

Working Capital - The amount of funds in the business required to finance the day-to-day operations of the business.