IFA Corporate Guide

Commercial Mortgages.

Purchasing their own premises can be a very smart move for most businesses. A business can thereby gain from rising property prices, save on rent and enjoy tax advantages, thus putting it onto a more stable financial footing and helping it to grow stronger and potentially expand.

To purchase your own business premises, you will need a commercial mortgage, which can be used not just to buy property and land, but as a potentially cost–effective way to raise money for capital expenditure such as purchasing machinery, hiring extra staff or acquisitions.

Depending on your business objectives, an IFA can assess whether borrowing in this way is the best option, by looking at the context of the business as a whole. He or she can determine whether alternatives like leasing or invoice discounting may serve a firm’s purpose better. Where raising money is concerned a mixed solution is often the best. An IFA is in the right position to achieve that and can present a persuasive, informed case to lenders.

Commercial mortgages are more expensive than home loans as they involve higher risks for lenders and work on different principles taking in a variety of factors pertinent to the actual business wanting to do the borrowing. Businesses need to be on a secure financial footing with an established track record. Such are the specifics of lending criteria it is not unusual that two similar properties in the same street would get different answers from lenders as it really comes down to the businesses themselves.

Criteria include the amount of the loan to the value of the property to be bought, how good a business might be at servicing this kind of debt and, vitally, what kind of industry sector it operates in. Some sectors may need as much as a 40 per cent deposit. Another factor that may influence lenders is the potential for cross–selling to the business, for example where a lender could also take over the daily business banking as well in the deal.

Generally commercial loans require at least a 20 per cent deposit. Rates are higher than residential mortgages – usually 2 to 4 per cent above the Bank of England base rate. However in developing areas and enterprise zones more competitive rates can be achieved.

Commercial mortgage specialist IFAs are invariably confident that their ability to source and compile mixed packages from the entire market results in better rates than if a business made a direct approach to say a bank.