Loans for commercial property

A mortgage can be identified by the fact it has what is known as a ‘charge’ against that property. A charge is a legal document held at the land registry and identifies who has a legal claim against your property. Most of us who are still paying the mortgage for our own homes have a ‘first’ charge against the property, and this charge is held by the company who lent you the money to buy the house. It is possible to have 2nd and 3rd charges against a property, and in respect of your own home this may be the case where you have taken out a secured loan. (for example to raise capital to buy a business, or build an extension on your house).
A commercial mortgage differs in another way to a personal mortgage in the fact that the cost or interest charged is at a commercial rate. In laymans terms this means it is higher. This is to reflect the fact of a greater underlying risk in a building being used for the purpose of making a profit, and may be adjusted higher or lower depending upon the kind of business operating from it.
Also to reflect the greater lending risk associated with commercial buildings, the amount of deposit your business will have to put down will be considerably higher than those allowed for a private dwelling. It is not uncommon that 25 to 50% be advanced as deposit. This can of course add up to a considerable sum when you consider that commercial mortgages tend to be higher in value than home mortgages (but not always).
The term of a commercial mortgage will generally be between 20 and 25 years.
Before your business can obtain a commercial mortgage, you will have to give details of the location and structural condition backed up by a report from a Chartered surveyor. The surveyor will also determine the sales value as is, and this will form the basis of any offer for finance. Surveyors reports are quite expensive, but well worth the money, as their report will highlight issues in respect of condition that may need addressing. Often, you will be able to use the findings of a surveyors report to negotiate on price.
You will be required to submit accounts for the last 3 years, and demonstrate the ability of your business to repay the loan before you are granted a mortgage.