A commercial mortgage lets you buy business premises rather than renting, spreading the cost over a long-term loan secured against the property. It's a significant commitment, so it's worth understanding how it works before deciding if it's right for your business.
How commercial mortgages work
Similar to a residential mortgage, a commercial mortgage lets you borrow a large proportion of a property's value, repaying it over an agreed term, often 15 to 25 years, with the property itself used as security. You'll usually need a deposit, commonly somewhere between 20 and 40 percent of the property value, though this varies depending on the lender and your business's financial strength.
What lenders look for
Commercial mortgage lenders assess both the property and your business carefully before approving an application. They'll typically look at:
• Your business's trading history, turnover and profitability
• The value and suitability of the property for your business use
• Your ability to afford repayments comfortably, not just at the limit
• Your personal and business credit history
Buying vs renting your premises
Buying premises through a commercial mortgage can offer long-term stability and the potential for the property to grow in value, but it ties up capital in a deposit and reduces flexibility compared to renting, particularly if your space needs change as the business grows. It's worth weighing the certainty of ownership against the flexibility that renting provides, based on how settled your business's space needs are likely to be.
What to check before applying
Get a clear understanding of the total cost, including arrangement fees, valuation costs and legal fees, alongside the mortgage rate itself. It's also worth getting independent advice on the property itself, since commercial property surveys can reveal issues that affect both the mortgage terms and your decision to proceed. A commercial mortgage broker can help you compare lenders, since rates and criteria vary considerably across the market.
Frequently asked questions
How much deposit do I need for a commercial mortgage?
This typically ranges from around 20 to 40 percent of the property value, depending on the lender, the type of property, and your business's financial strength.
Is it better to buy or rent business premises?
This depends on your business's stability, growth plans and available capital. Buying offers long-term stability, while renting offers more flexibility if your space needs are likely to change.
How long is a typical commercial mortgage term?
Terms commonly range from 15 to 25 years, though this varies by lender and the specific property and business circumstances involved.
