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Advantages and disadvantages of a commercial mortgage
There are lenders who will advance up to £25,000 as a business loan with amounts in excess of that requiring collateral. Even then, the amount a lender may be prepared to advance as a business loan is unlikely to be large enough to enable you to purchase premises.
An obvious advantage of a commercial mortgage is that the interest you pay can be offset against tax. Commercial mortgages are also available from 3 to 25 years. However, borrowers of a commercial mortgage will have to pay a sizable deposit of between 20% and 40% on the property’s value and this does prohibit some businesses.
The two types of commercial mortgage
There are two types. An owner-occupier commercial mortgage, where your business will trade from the premises bought with the mortgage and a commercial investment mortgage where you intend to rent out the property you have bought.
Service Central is a specialist commercial broker; we will work hard to find a lender that best suits the needs of your business, and will guide you through the complex application process.
Documentation required by the lender
Lenders have to make an assessment of a businesses ability to repay a mortgage, so they will want to see several things. Prior to submitting an application, you will be required to complete an Asset and Liability form. Only then might you be invited to submit a mortgage application.
The supporting documentation required by your lender will include bank statements for the last quarter at least, trading figures going back three or more years, and a detailed business plan showing projections for your business going forward. A valuation of properly the mortgage is being raised on will also be required.
For commercial mortgages, the credit rating of your business isn’t as important as it is for other financial products. This is because any mortgage will be secured against your business property. However, an imperfect credit rating is likely to mean that you will be charged a higher rate of interest. Commercial mortgages are also much more adaptable than a normal domestic mortgage allowing for purchases of large sites with a range of terms available.
An expensive commitment
A commercial mortgage is great for expanding your business or purchasing property that you previously leased. At Service Central we will advise whether a commercial mortgage is a realistic option for you.
Be warned, a commercial mortgage is an expensive undertaking. You have to pay the deposit required and prove you can meet the repayments. In addition, you will have arrangement, valuation and legal fees to pay. There are broker fees to pay too, although at Service Central we set our brokerage fee at a very competitive level.
Don’t try to navigate the commercial mortgage market yourself, let Service Central take the work out of it for you.