The Bionic guide to commercial mortgages

Get access to a host of business finance solutions - from business loans to commercial mortgages - with Bionic. We compare offers from a range of providers - including high street banks, challenger banks and alternative lenders. Our team then uses smart tech to quickly match you with your perfect solution and help give your business finances a boost.

What is a commercial mortgage?

Put simply, a commercial mortgage is a long-term loan that’s provided to business owners and secured against a property. In the UK, it’s usually available for 70-75% of a property’s value, and is repaid over a period of between three and 25 years. 

When is a business mortgage used?

With so many financing options out there to help you grow your business, how do you know when a commercial mortgage loan is the right choice? For smaller sums, you may be able to take out an unsecured business loan. But if you’re looking to borrow a large amount of money, your lender will want security. And that’s where a business mortgage comes in.

Perhaps you’re after a commercial mortgage to buy a property you already occupy, or that you intend to move into. Or, maybe you want to buy a commercial property as an investment. Either way, business mortgages can help you secure the cash you need. 

There are several benefits to owning a commercial property. For starters, if it increases in value, you’ll see a return on your investment. Also, you’re also protected from risks such as unexpected rent increases. Depending on the type of commercial mortgage you take out, you may even be able to rent out your property to bring in extra income. And remember, any interest paid on a commercial mortgage is tax-deductible!

What types of commercial mortgages are available?

There are two main types of commercial mortgage to choose from, with the first one being an owner-occupier mortgage. This is secured against a property that’s being used for your own business. The second type is a commercial investment mortgage (otherwise known as a commercial buy to let mortgage). You can take out one of these when you want to buy a property and rent it to someone else.

It’s important to know that the type of business mortgage you choose will influence how much you can borrow. It could also affect the amount of interest you’ll be asked to pay. Most commercial investment mortgages require a larger deposit, and you could end up paying a higher interest rate.

You can take out a commercial mortgage loan on both an interest only and capital repayment basis. Interest only commercial mortgages keep monthly payments low and can help from a cash flow position - but you’ll need to repay the full loan amount at the end of the mortgage term.

What fees and charges are included on business mortgages?

We know that transparency around any extra costs is key. You’re more likely to find lower interest rates on a commercial property mortgage than you would with an unsecured business loan. But, you’ll also need to bear in mind that typical commercial mortgage rates in the UK tend to be higher than they are for residential mortgages. They also depend on your lender’s assessment of your ability to repay the loan.

In the UK, commercial mortgage rates vary – so, much like a tracker mortgage for a residential property, they go up or down. Usually, you’ll be charged interest at a percentage above LIBOR - an average of rates charged by several banks in London - or the Bank of England base rate.

You may want to keep a little extra cash to hand for any additional fees to take out your commercial mortgage loan. Most lenders will charge an arrangement fee of between 1-2% of the loan amount, payable once a mortgage is approved. You’ll usually also need to pay a valuer to visit the property, and legal fees to arrange the loan.

With Bionic, you can save yourself the hassle of speaking to a commercial mortgage broker. Our team uses a data-driven approach to compare a range of lenders to find a package that works for you. Plus, as an added bonus, we don’t charge typical commercial mortgage broker fees.

Is your business eligible for a commercial mortgage?

Be sure your paperwork is all up to date, as your business will undergo a series of checks by lenders that you’re eligible for a commercial mortgage loan. They might look at things like your cash flow and debts, projected future income, the size of your deposit, and any rental income that will be generated by the property you want to buy. 

When you know the results of these checks, you’ll have a clearer idea of the commercial mortgage rates that are available to you. If you have a bad credit rating, you may still be able to secure a commercial mortgage, but you may be charged a higher rate of interest. If you haven’t been in business very long, you may also be asked to offer a personal guarantee - meaning you’ll be personally responsible for repaying the loan.

Whatever your situation, Bionic can support you. We’ll perform a thorough assessment of your needs and use smart technology to find a business mortgage that suits you.

Can a business mortgage be refinanced?

In short, yes. There are a few reasons why you might want to pay off your existing commercial property mortgage and take out a new one - for example, to release some cash or to negotiate a better interest rate. But there may also be fees or charges to pay.

Things to check include whether your existing lender will charge an early repayment fee. You should also calculate the fees involved in arranging your replacement business mortgage. Will these outweigh the savings you make by striking a new deal?

Do you need a deposit for a commercial mortgage?

Deposits are pretty common for commercial mortgage loans. But how much you need to pay can vary dramatically, depending on your circumstances and needs. 

Most business mortgages require a deposit of between 25-40%. If you’re after a commercial investment mortgage, meaning you’re planning to rent the property to someone else, you’ll need to put down a slightly larger deposit than if you were to occupy it yourself.

It’s rare, but in some cases, lenders may agree to issue a commercial mortgage without a deposit. In this scenario you’ll usually be required to offer another property as security against the loan.

Are business buy to let mortgages available?

Yes, commercial buy to let mortgages are available in the UK. We tend to refer to these as commercial investment loans. 

Applying for this type of mortgage means going through the same process as for a property you intend to occupy, but you’re likely to need a larger deposit and may be asked to pay a higher mortgage rate.

What alternative business finance options are available?

If you’re not sure whether a commercial property mortgage is right for you, there are plenty of other options available to help finance any plans to grow your business.

For example, asset finance. This can release cash from your existing assets or allow you to invest in additional equipment. Or, you could take out a bridging loan, providing short-term financing to complete the purchase of a property while another sale goes through. There’s also the option of an unsecured business loan, which might meet your borrowing requirements without the need for a deposit. 

Whatever your ambitions or requirements are, at Bionic we’re ready to help you find a solution that meets all your needs.

How to find a commercial mortgage with Bionic

We know that your business is unique. That’s why we kick off the process with a quick phone call to discuss your requirements (just five minutes of your time will help us find the right funding for you). One of our experts will then use our iFunds matching technology to perform an instant search of commercial mortgages in the UK. Using real quotes and eligible options we’ll quickly identify a solution that matches your needs.

Something to keep in mind is that lenders require a number of documents from you to process your application. Some of these will depend on the type of mortgage you’re applying for, but it’s normal to provide proof of identity and address; at least three months’ bank statements; and company accounts for the last three years. 

To help you save time and hassle, we’ll handle everything once your application is approved - making sure you receive your funds fast.