Business mortgages are the best finance solution for the purchase of buildings and land for businesses. They are flexible, affordable and work for both owner-occupiers and commercial investors.
The complexities of a business mortgage
Business mortgages fit into two main categories; owner-occupier where the borrower is purchasing premises for their own business and buy-to-let, where the property is being bought as an asset to rent out.
Every business mortgage is bespoke and tailored to the individual needs of the borrower. Qualifying criteria will include your trading history, what you intend to use the property for and its location.
In general, you will require a higher deposit for a business mortgage (at least 25% in some cases). They can be high risk and therefore carry a higher interest rate; you can offset this against a sizeable deposit to keep your repayments down.
But it’s not always this simple. Above a certain minimum loan value (normally £250,000), lenders will go to the money markets and price up a transaction based on a bespoke margin and SWAP rate price (the rate at which banks and building societies lend to each other).
And with business mortgages, the lender has a legal claim over the property until the loan has been repaid in full.
What can a business mortgage be used for?
Business mortgages can be structured with fixed or variable interest rate payments and are not just for the purchase of new business premises. You can also turn to a business mortgage to:
- Develop your existing property
- Extend your current premises
- Finance commercial developments and projects
- Purchase land for new premises
- Fund a residential housing project (buy-to-let)
Key points to consider:
- Business mortgages are based on complex pricing models and the verdict of lending panels at each individual lender
- In addition to valuation, arrangement and legal fees, there are often other associated costs
- Lender fees are typically around 1%
- Most small or medium-sized loans offer an LTV of 75%, sometimes up to 80%
- The standard term of a business mortgage is 15 years, but can be up to a maximum of 25 years
Why external advice pays
The value of a qualified consultant within this field cannot be underestimated. The bespoke nature of every single business mortgage transaction means it can be a complex business, and a good consultant will be able to negotiate the best rates with lenders.
Pegasus not only provides business mortgages and bridging loans directly, but we also work with a number of brokers to give you a competitive range of quotations.