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What Is A Commercial Mortgage?

There are many ways commercial finance can be used. A popular one is a commercial mortgage, which is a loan secured on a property for your business or investment purposes. Commercial mortgages are a niche, more selective market as opposed to an everyday mortgage for general housing, because they only focus on commercial properties that enable a business to generate income or provide a rental income stream.

Going to a specialist lender rather than your general bank can open the door to the possibility of a commercial mortgage loan, even if you haven’t met the criteria of your usual bank, and the specialist lender may even offer a better choice of rates. Specialist lenders will also only be interested in providing the commercial mortgage, leaving you free to bank with whoever you like. This distinction can create a degree of protection, especially during recessions or times of business downturn.

 

Why would you need a commercial mortgage?

There are many reasons as to why you may need a commercial mortgage, but the main two are to own the building your business trades from or to purchase as an investment.

For example, if your building’s rent has increased or your business has outgrown its current space, opting to take out a commercial mortgage may be a good long-term option for your business. It may even come with some tax benefits too depending on how the loan is structured. If you’re an investor, a commercial property may be a good addition to diversify an investment portfolio.

 

What properties can I purchase with a commercial mortgage?

The most popular properties, at the moment, to purchase with a commercial mortgage are industrial or logistic properties or offices. However, funding may be found for a much wider selection property types including retail shops, restaurants, and nursing/care homes and private schools. With the developing green agenda, waste distribution centres may be an alterative property type.

You will, however, have to bear in mind that some specialist lenders do not provide mortgages to certain more specialist sectors and property types, so it’s recommended you do your research carefully or speak to a specialist broker.

 

What are the differences between residential and commercial mortgages?

There are several differences regarding the two. For instance, the value of commercial mortgages is generally a lot larger than a residential mortgage. With a higher loan on a specialist property comes a greater risk, so lenders will require a higher deposit between 25-50%. As well as this, commercial mortgages are often shorter, usually up to 15 years but, in some case, you may find a lender that will offer a longer term.

You should also consider whether the property is a mixed-use business or a single-owned property. For example, is there a flat above your shop or restaurant? If so, a mixed loan (commercial and residential) or semi-commercial mortgage will be applied, as people will be residing and working in your property which will incur additional checks and could alter the loan.

Types of commercial mortgage

The two types of commercial mortgages are:

Owner Occupier – When you, as a business owner, or your company purchase the property to run your business from. If you own the property already, these loans can also be used to raise money (capital raising), which can then be re-invested into their business.

Commercial Investment Mortgages – You may opt for this type of mortgage when buying a property as an investment opportunity. Commercial investment property can be a good addition to a property portfolio dominated by residential property, however, managing a commercial investment property is much more complex than a buy to let, so specialist advice from an agent is recommended if this form of investment is new to you.

It’s also not uncommon to find a mixture of the two, with a hybrid occupier investment in which multiple businesses operate under a single property which your business happens to trade from as well. With this, you can then lease out the additional space until you need it, however, this will come with additional legal requirements.

Chordis Capital

Choosing a specialist lender to provide you with the right kind of finance can help alleviate stress that you would otherwise potentially get dealing with your local bank. Your specialist lender will not only be readily accessible, but will also build a solid relationship with you and shape a bespoke financial solution.

Chordis Capital offers a variety of different loan finance and mortgage options to support you in property financing. Find out more about what services we offer or get in contact with one of our finance lenders by calling 0330 202 0109 to find out how we can help you.

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