How To Get A Large Commercial Mortgage

21-May-2018 12:12
in News
by Jennifer Stevenson

We’re often approached by clients, existing and new, for help in securing business mortgages and commercial investment mortgages. For each enquiry we receive, we have to take an individual approach based on the borrower and the property or land they wish to purchase.

In this article, Clifton Private Finance looks at business mortgages and commercial mortgages, and we let you know what you need to do to qualify for a large commercial mortgage of £1m or more. 

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What is a business mortgage?

You would need a business mortgage to buy the following:

  • Commercial property from which your business trades.
  • Mixed-use property from which your business trades (for example, a shop with separate residential accommodation above it).

Individuals, limited companies, SPVs, and offshore structures may apply for business mortgages on UK commercial property and mixed-use property. 

Business mortgages work just like the standard mortgage you have on your home. You will need a deposit, and you then pay the rest of the remaining cost of the property off with the mortgage. 

Clifton Private Finance has access to the whole of the business mortgage market, meaning that you have the best chance of finding a lender who will want to work with you and benefit from the most competitive rates in the market. 

With a business mortgage arranged by Clifton Private Finance, you can typically borrow up to 75% of the value of the property you wish to purchase. 

The length of time your business mortgage can be taken out is between 2 and 30 years. 

What is a commercial investment mortgage?

You will need a commercial investment mortgage to purchase:

  • Commercial property, which you would then rent out.
  • Mixed-use property, which you would then rent out (for example, a shop with flats on the higher floors).

With a commercial investment mortgage, you not only benefit from the rental income stream but also from any increase in the value of the property over time.

You will need a 25% deposit on the value of the property you wish to buy using a commercial investment mortgage. As with a business mortgage, you can choose a term of between 2 years and 30 years.

Please ask us about interest-only mortgage periods and variable, fixed, and roll-up rate options.

It is possible to obtain funding on all types of commercial premises. Your chances are significantly improved if the property you wish to purchase using a commercial investment mortgage already has sitting tenants with 2 or more years left on a standard full repair and insurance lease.

If the premises you wish to invest in are vacant, a lender may advance up to 75% of what a valuer believes the property could be sold for within 180 days. 

What are the interest rates like on business mortgages and commercial investment mortgages?

Each business mortgage or commercial investment mortgage offered by lenders is priced individually. That means that your funder will apply an interest rate to your business mortgage or commercial investment mortgage commensurate with the individual circumstances of your deal.

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Factors that will influence the interest rate on your business mortgage will be the success of your current business, the property itself, and the industry sector you trade in. From fintech startups to lawn care businesses, there are large commercial mortgages out there to suit every application.

For commercial investment mortgages, lenders will consider your experience in property investment, the financial strength of the tenant or tenants occupying the property now (if applicable), and the time left on each tenant’s lease.

Can you borrow money with a business or commercial investment mortgage with little or no experience?

Yes, although you may have to pay a higher rate of interest.

In the eyes of most lenders, what defines an experienced investor is having owned a couple of other properties you have let out for the last two years or more.

Whether you have experience or not, all funders will prefer you to be a homeowner, have savings in the bank, and be able to provide evidence of your income howsoever earned.

I have the opportunity to buy commercial property at a discount. Can I borrow more than 75%?

In many cases, landlords keen to raise cash, for example, as a deposit on a new purchase, may look to sell a property they currently own at a discount – often to a sitting tenant.

If you have been offered commercial property at a discount, some lenders will consider advancing you 100% of the purchase price on the condition that the size of the mortgage is not larger than 75% of what a valuer would assess as the market price. The lender will also take into account the condition and location of the property when coming to a decision.

How much can you borrow on a business mortgage?

Clifton Private Finance works with lenders which provide business mortgages of between £250,000 and £25,000,000.

How much can you borrow on a commercial investment mortgage?

Commercial investment mortgages between £250,000 and £25,000,000 are available through Clifton Private Finance’s panel of 60 lenders.

Can you make overpayments on my business mortgage or a commercial investment mortgage?

Each lender has different terms and conditions for overpayments. Please be sure to tell us when you make your application for a business mortgage or a commercial investment mortgage that you would like the ability to overpay or settle early.

What do lenders look for in an application for a business mortgage or a commercial investment mortgage?

Every lender has their own criteria they use when deciding whether they’ll lend someone money for a business mortgage or a commercial investment mortgage.

They’ll want to know about your experience in business, the amount of money you need, what you want to borrow the money for, and what security you can offer them on the business mortgage or commercial investment mortgage. They’ll want to inspect any business plans you have put together so they can assess your ability to repay the finance at the current interest rate (and stress test your plan to see if you could still make repayments if interest rates went higher).

Lenders tend to look favourably on an application if you have a clean credit history, you have some experience in the type of business you’re running or want to run (particularly if you are using a commercial mortgage to buy a business), and they are comfortable with the amount of money you want to borrow.

I want to buy premises for my business to work from. Would that qualify for a business mortgage?

Yes, you would need to apply for a business mortgage.

I want to buy business premises that also comes with living accommodation. Should I apply for a semi-commercial mortgage?

The types of semi commercial mortgages we arrange the most are:

  • Semi commercial mortgages for shops with flats above
  • Semi commercial mortgages for restaurants/take-aways with flats above
  • Semi commercial mortgages for offices with flats above
  • Semi commercial mortgages for pubs with self-contained living accommodation
  • Semi commercial mortgages for holiday parks with residential accommodation
  • Semi commercial mortgages for guest houses with owner’s accommodation
  • Semi commercial mortgages for B&Bs with owner’s accommodation
  • Semi commercial mortgages for home-based health and beauty clinics
  • Semi commercial mortgages for hair salons/beauticians with flats above
  • Semi commercial mortgages for garden nursery businesses with house attached
  • Semi commercial mortgages for boarding kennels with living accommodation
  • Semi commercial mortgages for cattery businesses with living accommodation

How lenders view your application for a business mortgage or commercial investment mortgage on property with living accommodation will vary from case to case.

If 40% or less of the premises is residential, most lenders will let you apply for a business mortgage. The lender will generally place no restrictions on what you do with the residential part of the property.

If more than 40% of the premises are residential and you intend to use this part of the property as a residential buy-to-let, again, most lenders will consider a business mortgage as the most suitable product.

However, if more than 40% of the premises are residential and you and your family intend to live in the property as your primary residence, you will need a residential mortgage for this. Please get in touch with us for help with this.

What commercial mortgages are for leisure industry businesses?

Clifton Private Finance brings existing and prospective clients extensive experience in arranging:

Clifton Private Finance works with a number of different lenders to the leisure industry and we can find you the best value mortgage on the market with the best possible terms.

If you have no experience in the leisure industry, you will more likely than not be asked to pay a slightly higher interest rate than someone who has. Either way, lenders will be interested in understanding more about you and your plans for the business (including cash flow and profit and loss projections).

Commercial mortgages for leisure industry businesses tend to be from £75,000 in value and between 5 and 25 years in length. Interest-free options for up to the first twelve months are available if the premises need to be refurbished or if you need to buy stock for when you take over the business. Lenders will generally advance up to 80% of the value of the property – they will consider up to 100% of the price if you can provide additional security and expected levels of profitability will cover the repayments.

Can you arrange business mortgages for care homes?

Clifton Private Finance has worked with many clients over recent years assisting them to purchase their first care home, refinance care homes they own and operate, and add care homes to their portfolio.

If you want to purchase your first care home, you must prove your ability to run one successfully. Experience in the industry and holding of relevant and current trade qualifications will work strongly in your application’s favour. Buying a care home without experience is possible – please speak to us if this describes your situation.

For all care home purchases, the current rating given to the care home by the Care Quality Commission (CQC) is an important consideration for a lender. If a care home you wish to buy as either your first purchase or when expanding your portfolio has a poor CQC rating, a lender will want you to demonstrate your ability to turn the situation around as part of the application process.

Likewise, lenders will look for comfort from the trading performance of the care home you want to buy. They will use these figures to assess how serviceable the mortgage payments are. They will also look to you and your business plan for reassurance if they have concerns that there is insufficient space in your monthly cash flow to repay them.

Care home mortgages generally last between 20-25 years, and lenders will look to advance up to 80% of the price of the home to you. Minimum mortgage size is usually around £100,000.

Can you arrange leasehold premises business mortgages?

If, by the time the mortgage has been paid off, there are 40 or more years before the expiry of the leasehold, Clifton Private Finance can normally assist you.

Can you help switch me to another mortgage provider because I am not happy with the rates I’m paying?

Yes. We are very happy to help you get a better deal. 

What is the situation with VAT when purchasing commercial property?

Sometimes, you will have to pay VAT on top of the purchase price of commercial property to the seller.

In these cases, Clifton Private Finance can work with you to arrange a VAT bridging loan if short-term funds are required. With a VAT bridging loan, a lender will transfer a sum to you equivalent to the VAT you have to pay to take ownership of the property. You can then claim back the VAT on your next return – HMRC normally pay refunds within 30 days.

Please note that VAT bridging loans are only available to VAT-registered applicants.

How do I get a large commercial mortgage?

Through its lending partners, Clifton Private Finance offers business mortgages, commercial investment mortgages, semi-commercial mortgages, leisure industry mortgages, and care home mortgages of up to £25m in value.

Generally, any facility you ask for for more than £1m will be treated as a large commercial mortgage. Lenders will want to see cash flow forecasts, profit and loss statements, your balance sheet, an assets and liabilities statement, and a business plan.

You’ll require an experienced team of finance professionals to do the preparation required to “package” your mortgage application correctly so that it will receive the proper consideration.

I have been refused elsewhere for business or commercial investment mortgages. Should I approach Clifton Private Finance?

Each commercial lender has a profile that describes the type of project they like to fund and the type of businesspeople they feel most comfortable working with.

Clifton Private Finance are aware of each of our lending panel’s profiles. We will package your proposal and present it to a lender whose profile you and your project fits the closest to so that we can secure the most advantageous deal for you in the shortest possible time.

Who does Clifton Private Finance work with on business mortgages and commercial investment mortgages?

Clifton Private Finance arranges business and commercial investment mortgages through specialist lenders and high-street banks, including Lloyds, Barclays, HSBC, and NatWest.

We also have access to an extensive network of private banks and wealth managers with whom we have arranged many business mortgages and commercial investment mortgages in the past.

Working with Clifton Private Finance

Clifton Private Finance can give you a same-day in-principle decision on a business mortgage application or commercial investment mortgage application.

If you’d like to speak with one of our consultants about a business mortgage or commercial investment mortgage, please call our finance team in Bristol at 0117 959 5094.

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