How Does a Commercial Mortgage Work?

Mortgage Broker
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How Does a Commercial Mortgage Work?

There are two types of mortgages that you can apply for with a standard lender; residential mortgages and commercial mortgages. A residential mortgage is suitable if you need a place to live, but a commercial mortgage is used to buy premises for your business.

What is a Commercial Mortgage? 

Commercial mortgages are the same as residential mortgages. Both types of mortgages allow an individual or company to lease property and use it for business purposes while they pay back the capital in monthly instalments with interest.  The main difference between commercial mortgages and residential mortgages is the purpose of the mortgage. Residential mortgages are used to buy properties to live in, while commercial mortgages are used to buy properties to work in. Commercial mortgages can be more sizable. 

Why is it Better to Buy a Property? 

Renting a property is generally more expensive than paying for a mortgage; not only that, a rented property is owned by a landlord, which restricts its usage. When you rent a property, you may be paying high rents, and you may have to rely on a landlord for fixes and alterations.  This is not the case when you buy a property. Although the property is secured with the bank, it also technically belongs to you as long as you maintain your monthly commitments. This means you can make changes to suit your business and save on costs. 

The Advantages of Using a Mortgage Broker? 

As with residential mortgages, commercial mortgages can be arranged by a broker. The broker will always have your interest in mind and will aim to get you the best possible deal with a lender that understands your business and you. A broker that deals with the whole of the market, that is, any lender in the market. With the broker not tied down to a choice of only a few lenders, they can source a lender that best suits you and your business.

How to Apply for Commercial Mortgages

As with residential mortgages where the bank will want to know about your income and expenditure, the commercial lender will want to know about the business. They will want information about the business like what it does, who owns the business, is it a limited company or sole trader and it will want to know about the Director’s/ owner’s experience. 

Once they have an idea about your business, they will want to know about the financial stability through the company accounts. They will ask for the last 3 years’ accounts to see if the company is trading with a profit, the assets and liabilities in the balance sheet and to see if sales have been increasing year on year. They want to know if the business is viable and there is a continued demand for its product.

Some criteria have also changed recently because of Covid-19. The impact of the pandemic has changed the business landscape and lenders are very cautious with certain businesses because they may deem it to be more vulnerable. If the business took out Government loans or grants may also affect their decision to lend. 

This is why a broker can be invaluable when applying for a commercial mortgage. They can navigate through the various lenders and their criteria to find you the best possible deal.

Commercial mortgages with Airborne Mortgage Solutions

If your looking for commercial mortgages Leicester, get in touch with us today! Whether you are a business start-up looking to purchase your first business premises or an existing enterprise looking to expand into something bigger, Airborne can guide you through your options, and make the application process more manageable.