Commercial mortgage comparison

The amount you need to borrow can determine the type of loan you need to take out. If you’re borrowing up to £25,000, you might be eligible for an unsecured business loan. But if you’re looking to borrow more, your lender will want security. And that’s where a business mortgage comes in.

A commercial mortgage is often used in much the same way as a residential mortgage, but for business premises. For example, you might use a commercial mortgage to buy a property your business already occupies or is looking to move into.

Or you could use a commercial mortgage to pay for a property you want to buy as an investment, and any interest paid on a commercial mortgage is tax-deductible.

Commercial mortgage applications work in much the same way as residential mortgage applications, which means you’ll need to do complete and send an Asset and Liability form along with the commercial mortgage application form.

You’ll then need to supply the following information on your business:

• Bank statements from at least the last three months
• Trading figures from at least the last three years
• Proof of identity and address
• Tenancy agreements and/or lease agreements

To help the lender determine the affordability of the mortgage, you might also be asked to provide a business plan that includes financial projections.

The property will need to have been valued by an agent accredited by the Royal Institute of Chartered Surveyors (RICS), and all legal due diligence is carried out by the lender’s solicitors.

If everything gets approved, you’ll receive a mortgage offer from the lender.

A commercial mortgage is a big undertaking for any business, so you need to carefully consider the type of mortgage and lender to go with before you start the application process.

But there are loads of commercial mortgage lenders on the market, all offering different types of business mortgages that come with different interest rates and loan-to-value rates (also known as LTV rates, these basically determine how much of a deposit you’ll need to put down).

That’s why using a commercial mortgage broker is arguably the most straightforward way to compare commercial mortgage providers to find the product and lender that’s right for your business.

At Bionic, we work with Think Business Loans to compare the best commercial mortgage rates from our panel of lenders, which includes high street and challenger banks.

Our business finance division at Think Business Loans understands the calculations these lenders will use when assessing your application. This means we’re well placed to find the right lender for your business. Our iFunds technology searches for commercial mortgages from a panel of lenders to work out a solution that matches your needs.

Commercial mortgages are big deal for both the lender and the borrower, which means the lending criteria is usually robust. Although eligibility checks vary between lenders, you’ll most likely need to meet the following conditions:

• A good business credit score – Although not always a deal-breaker, having a good credit score will help your application for a commercial mortgage. Some lenders will accept applications from businesses with a bad credit rating, but these will come with higher interest rates to reflect the added risk to the lender.
• Evidence you can afford to pay a deposit alongside the repayments - Commercial mortgages usually need a deposit of between 20% and 40% of the loan amount. You might need proof of projected income as evidence that you can afford the deposit and repayments. This might take the form of a financial health check that looks at cash flow, general income, existing debts, credits, and assets.
• Proof of income – This can be in the form of salary, self-employment, or even rental income.

It might also help your application if you’re a homeowner.

A commercial mortage is a very specalised product that’s generally available for larger amounts and can only be used for specific purposes. But there are alternatives available if you need to borrow lower amounts or need the money for reasons outside of property buying or development.

• Bridging loans might be an option if you've bought stock or property and have a gap between the payment due date and money becoming available to you (say you’re relying on the sale of one property to fund the purchase of another).
• Short-term loans could be worth considering if you need to cover costs without the long-term commitment of a mortgage. These loans are usually available for smaller amounts and need to be repaid within 12 months. This is often used for financial relief to cover working capital, cash flow, and other expenses.
• Asset finance is another short term loan option that is often used to finance any items that appear on your balance sheet, such as equipment, fixtures and fittings, or commercial vehicles.
• Invoice finance may be an option if you’re owed money on outstanding invoices but need the money now to cover cashflow. This allows you to borrow money against the amounts owed to you on unpaid invoices.
• Secured business loans are sometimes available for relatively large amounts, so long as you have the necessary assets to use as security against the loan. That means that a lender will be able to offer better repayment terms because the asset is used as a form of guarantee by the borrower.