If someone is looking to buy a premises for a business, it is possible they’ll need to take out a commercial mortgage to fund the purchase. Before looking around, it could be important to take into consideration the business’ monthly repayment budget and how the company is likely to grow. There may also be a number of other factors to consider, from the mortgage rate through to lender fees. In this article we take a look at the process of taking out a commercial mortgage, and the steps you could follow to try get the right deal.

What is a commercial mortgage?

A commercial mortgage is a mortgage loan secured for a commercial premises, such as an office building, shop, warehouse or apartment building. The type of premises you take out a commercial mortgage for might actually be an investment to you, wherein tenants pay rent that you use, in turn, to pay off the mortgage.

The standard process for securing a commercial mortgage is that an application is submitted, the premises is valued and if approved, a mortgage offer is issued by the lender and the transaction is completed.

It’s important to note that because commercial properties can take longer to sell than houses, lenders generally see them as being more risky, and for this reason interest rates tend to be higher.

How do I get a commercial mortgage?

As with a residential mortgage, it could be vital to search the market for the best possible deal for you and your circumstances. Some people start with the high street, but they might not have the most competitive deals available. Other use mortgage brokers. A broker should be able to search the market for the best deal, and highlight the most appropriate deal for your circumstances.

What should I take into consideration when looking for the right deal?

In most cases, the process of applying for any mortgage could be helped having a clean credit record, as this could open up greater choice and the most competitive deals. You may also consider the loan to value ratio, and how much of your own money you are able to invest into the premises. The more of your own money you are able to invest, the more competitive dinner you could potentially obtain. Most commercial mortgage lenders will want a 25% deposit - however, you can get as low as 15%.

Your lender may also require information about your business, as they will possibly be looking to see if it is profitable. You may be required to hand over your business accounts and projections, so that they can check if your business has longevity and is not subject to any immediate financial pressures.

What type of information will I have to provide?

Most lenders will want to check information about your business, along with personal information, so it may be important to be prepared before you start your application.

The main concerns of the lender could be whether you are able to afford to repay the mortgage, and, if you were to default, whether the premises itself is worth enough to cover the remaining value of the loan.

You may want to have the following information on hand when applying for your commercial mortgage:

• Current business performance

• Audited accounts for the last two years

• Profit and loss forecast for the coming years

• The personal details of any key stakeholders, so they can be credit checked

• Asset and liability statements for each applicant

• A business plan explaining how the premises will contribute to your cash flow, and how you intend on repaying the mortgage

• The credit status of the business

• Details of any personal investments

• Growth projections for the business What about fees?

Some people say a key feature of commercial mortgages is that they tend to be subject to higher fees than residential mortgages are. Your broker should be able to go over these fees with you, but here is what you could expect:

• Arrangement fees (generally between 0.5% and 1.5% of the loan amount)

• Valuation fees (the cost of the lender surveying the premises to establish its value)

• Legal fees (including legal documents, insurance and your own surveys)

• Early repayment/exit fees As fees can vary depending on the product you take out, it could be crucial that you do the maths to figure out the total cost of your repayments and any applicable fees. This could be why the lowest rate might not always equal the best deal - you may find a low rate with sky-high fees, which may work out more expensive than a loan with a higher rate, but lesser fees.

What should I do next?

One thing to do if you want to take out a commercial mortgage could be to have a quick scour of the markets yourself. Be prepared - collect the previously mentioned documents, and explain to the broker - if you choose to use one - your needs and requirements. The broker should be able to assess your situation and help you make an informed decision.

Eddison Wells is a mortgage brokerage - with a wealth of knowledge, their team are able to advise on a comprehensive range of financial products. If you’re thinking of taking out a commercial mortgage, Eddison Wells Financial Mortgage Brokers are free to speak on any business day - call now on 0800 808 9981. Providing the highest quality service at the most affordable price is a prerequisite and a firm ethos.