Commercial Mortgages

An overview of the commercial mortgage

There are many reasons for buying commercial premises. For example, you may be starting or buying an existing business where the property is directly linked to the business, such as a hotel, a retail outlet or a takeaway. Or your existing business may need bigger premises to cope with expansion.

If you decide to buy premises you'll probably need to take out a commercial mortgage. Mortgages are usually for 15 years or more and the property itself is at risk if payments are not made on time.

Commercial mortgages can be used for a variety of purposes, such as:

the purchase of business premises
extension of existing premises
residential and commercial investment
property development
Meeting the lenders' criteria
Most banks and building societies offer commercial mortgages, but you must satisfy the lenders' criteria. Some lenders may accept applications where there is an adverse credit history, but most require a positive personal credit rating and clear evidence that your business is creditworthy. Most will apply a loan-to-value ratio and will expect you to invest a proportion of your own money into the purchase.

The lender's decision will also depend on your current business circumstances - a commercial lender will expect your business to be stable and profitable. They may ask to see your business plan and long-term financial projections, to assure themselves that your business has, and will continue to have, the ability to make repayments on the loan.

Some lenders impose restrictions on the uses of commercial premises and certain business concerns may be excluded altogether. For further information, read information about different types of commercial mortgages at the Decision Finance website.

The terms of a commercial mortgage will depend largely on the type of business you're running and the type of premises or land you want to buy. This is a complex area and it's essential that you seek specialist advice from your solicitor and probably a chartered surveyor.

Subjects covered in this guide

Introduction
An overview of the commercial mortgage
Pros and cons of buying business premises
What lenders need to know
Different types of lender
Repaying a commercial mortgage
Commercial mortgage fees and costs
Finding a lender
Here's how I took out a commercial mortgage to buy a pub