Questions to ask when thinking about Commercial Mortgages
Getting your SME business on the property ladder can be stressful. As well as deciding what furniture and equipment to take, you need to manage the situation and minimise any disruption to your operations. But before you get to that stage, you need to overcome the cost factor. With the value of real estate rising, pulling together cash from your accounts is risky and may not cover the whole amount. So why not seek another path and see how a Commercial Mortgage can help your business move or expand across the UK. Commercial Mortgages present you with the means to spread out the cost of purchasing or redeveloping property over time. However, it’s essential that you understand every aspect of the product, enabling you to decide whether it’s the most suitable route for your business. So, here are just some of the questions you need to ask about Commercial Mortgages:
- How can Commercial Mortgages be used?
- How much could you borrow with a Commercial Mortgage?
- Will you need to make a deposit?
- What types of Commercial Mortgages are available?
- Will you need to provide security?
- What documents will you need to provide?
- How are a Commercial Mortgages repaid?
- What fees and charges should you be aware of?
How can my business make use a Commercial Mortgage?
As well as being able to acquire valuable real estate by spreading out the total purchase price, Commercial Mortgages can also benefit properties already in your possession. By applying for a Commercial Mortgage, you can even fund vital redevelopment projects or release the equity contained in your property portfolio (known as a remortgage). As such, Commercial Mortgages are a dynamic tool useful for a wide range of UK businesses.
How much can I borrow with a Commercial Mortgage?
If you are purchasing property, the size of any potential lump sum may be in the same region as the desired property. But if you aim to redevelop or release equity, it will, instead, be based on the amount of equity contained in the property that you own. However, Commercial Mortgages usually start from £50,000, with no set limit to what you could borrow since they work around a percentage. Yet lenders may impose their own credit limits based on how much they’re willing, or able, to lend.
Will I need to make a deposit?
Yes, although you are, in fact, covering a portion of the property’s equity, which typically starts from 20% of the property’s purchase price or estimated market value. By making such a commitment, you’ll, therefore, only need to borrow the remaining 80%. But, if you’re able to cover 40% of the property’s total value, lenders may offer you a lower interest rate as a result.
What types of Commercial Mortgage can I choose from?
There are two types of Commercial Mortgage available - Fixed Rate and Variable Rate - both of which affect how the interest is handled. With a Fixed Rate Mortgage, interest remains constant throughout the repayment process, giving you greater certainty. The downside is that if market interest rates decrease, you’ll miss out on any potential savings.
However, with Variable Rate Mortgages, the amount of interest you’ll pay each month can change according to market interest rates. Although you could benefit if market interest rates fall, you risk paying more should they rise. Therefore, you’ll need to decide between consistency or the prospect of potential savings.
Will I need to offer security?
Yes, you’ll need to provide security using valuable unencumbered land or property. This requirement is crucial in the application process since it reassures lenders of your commitment. However, the purpose of the loan will affect what’s used as security. If you are purchasing, lenders will take security in the desired property. But if you aim to release equity or fund a redevelopment project, they’ll, instead, take security in a property that you already own outright. Note that lenders will repossess the property in question if you fall behind in the repayment scheme.
What will Commercial Mortgage lenders be looking at in my application?
When considering your business’ mortgage application, lenders will want to know about your goals, performance, financial situation and whether you can afford the agreement. Therefore, you’ll need to submit various documents that provide lenders with the information they need, including:
- detailed business plan
- Profit and Loss statements
- audited trading accounts for at least 2 years
- business and personal bank statements
- asset and liability statements
- growth forecasts
Lenders will also look at your credit score and any relevant matters such as CCJ’s, Accelerated Payment Notices, financial obligations and whether you have a reliable history of repaying your debts. If there’s anything that lenders should know, even if it’s negative, be upfront. Lenders will always appreciate it if you inform them of any potential issues. If you don’t and they find an issue, they’ll wonder what other problems may exist, damaging your application’s credibility.
How are Commercial Mortgages repaid?
Commercial Mortgages are repaid using a Fixed Monthly Repayment scheme, requiring you to repay a set amount of cash at the end of each month for an agreed term, plus interest. Available terms typically extend from 3 to 25 years, possibly longer. However, if you’ve applied for a Variable Rate Mortgage, the amount of interest you’ll pay each month can fluctuate according to the going market interest rate.
Are there any additional fees that I should be aware of?
As well as covering a portion of the property’s equity, lenders may charge a number of fees and costs throughout the agreement, ranging from arrangement fees, valuation fees, legal fees, early repayment fees (redemption penalty), missed payment penalties, exit fees and so on. Before signing any contract, make sure that the lender thoroughly explains all of their charges. These should be expressed inside a Mortgage Illustration Document.
Looking for a Commercial Mortgage?
Cash is a vital commodity for any business, powering growth and development. But if you’re looking to acquire a permanent address, the potential costs involved could be beyond what you can comfortably afford. Meanwhile, you need to be close to your customers in order to earn a reliable revenue. This puts you at an impasse. Or does it? Rather than risk your business’ finances, you could apply for a Commercial Mortgage. So, don’t hold your business back. Unleash your potential!
If you’re looking to spread into new markets or add to your property portfolio, apply for a Commercial Mortgage today, or find out more with Rangewell.