100% Commercial Mortgages Guide
A commercial mortgage is normally taken out by a business to overcome increasing rent or as part of a business expansion project. Sometimes referred to as a business loan or a commercial investment mortgage, commercial mortgages help businesses buy the premises they work in outright, with the property being used as collateral in the agreement.
A business loan can also be used for a number of other purposes, such as property development finance, refurbishment, or for buying machinery and equipment.
Commercial mortgage loans typically start at £25,000, and repayment time tends to stretch between 1 and 25 years. However, like all loans, it’s important to note that each type of commercial loan differs. The loan to value (LTV) ratio most commonly falls between 70 and 80% for commercial mortgages; however, it is possible to attain a 100% commercial loan.
In this article, we’ll find out how to attain a 100% business mortgage and the terms and conditions required. We’ll also determine how best to apply for a secured loan while highlighting other business finance options.
What Is A “100% Commercial Mortgage”?
A commercial mortgage that is a 100% loan to value (LTV) is a business loan that requires no up-front payment from the debtor. In providing a commercial mortgage at 100% LTV, the creditor covers the entire amount needed for the purchase price of the business property.
Taking out a commercial loan is a good move for businesses that lack the funds presently to cover the cost of purchasing the premises they work in. However, some businesses don’t have liquid assets to cover 20-30% of the LTV upfront, which is commonly expected in business loans.
If you’re a new business looking to buy your own business property, a 100% commercial mortgage could be hugely beneficial. They work as a secured loan, meaning that the property you purchase acts as collateral.
Instead of putting forward your liquid assets as a down payment, you could use them to invest in other things, such as to cover unexpected expenses and to finance other areas of your business growth.
Plus, you don’t have to worry about rent increases and may even benefit from an increased property value by the time your mortgage has been paid off. While paying off the mortgage, you could rent out excess space in the property to other businesses. This could help guarantee a steady income and also could help you meet the monthly repayments.
In order to balance the benefits out, a commercial mortgage offered at 100% LTV typically has higher interest rates. Providing a 100% LTV commercial mortgage is a risky move for banks, so they will most likely ask for higher interest rates in order to reduce the risk level. Generally, banks see commercial loans to be far riskier than home mortgages.
You may also be expected to pay back bigger monthly sums, considering that you borrowed more than the average commercial mortgage loan. This puts pressure on your enterprise as you are required to keep on top of these costly monthly payments. If your business turns out to be unprofitable, you may struggle to pay back the loan.
You may have to provide additional security to act as collateral if required, which could include your stocks, shares, home, or any other valuable belongings.
The Different Types of Commercial Mortgages
A commercial mortgage is a broad term that refers to a number of different uses, which includes the following:
This is the most basic type of commercial mortgage and entails a business buying a property for their own business needs. Whether it be a retail space or office, owner-occupier mortgage covers businesses that are solely using the property for their own business interests.
Commercial investment mortgage
This is where you buy commercial property solely with the intent of renting the space out to others to use. This type of business investment is done solely for investment and does not benefit your own business needs in any way other than providing finance.
There are a few different types of commercial investment mortgages, such as:
Buy-to-let residential mortgage
For landlords who are interested in purchasing residential property with the sole intent of renting it out to other people to live in, a buy-to-let residential mortgage will be necessary.
Buy-to-let commercial mortgage
This is for the purchasing of a warehouse, retail, office, or any other type of commercial space for purely commercial reasons. If you are only purchasing the commercial space to rent it out to other businesses, you’ll need a buy-to-let commercial mortgage.
Semi commercial mortgage
This type of mortgage cover is best for those looking to invest in buildings that have split use. For example, a building with office space on the ground floor and residential apartments on the second floor would be considered a semi-commercial property and would need a semi-commercial mortgage.
Conditions To Get A Business Mortgage With 100% LTV
Applications for a business mortgage with 100% LTV will be judged by banks against the following criteria:
The more you can put forward in additional security, the more likely the bank is to grant you a 100% LTV commercial mortgage. This extra security could be in the form of your own home, your car, or your other business assets.
The lender will also consider the location of the property you’re looking to invest in.
If you already own business properties, you’re far more likely to attain a 100% LTV commercial mortgage if your other properties are located elsewhere. A lender will likely reject an application if you already own properties within the neighbourhood you’re looking to invest further in, as you may suffer financially if the market value of that area depreciates.
Given how risky providing 100% LTV is, loan providers need to be confident in the profitability of the business endeavour. In order to assess this, the lender will check your prior business earnings before interest, tax, depreciation, and amortisation (EBITDA).
Just like in any mortgage application, a poor credit rating will greatly lessen your chances of being approved. High street banks will definitely prefer a clean credit rating when it comes to 100% LTV mortgages, but some specialist providers may offer you one in spite of your rating.
Your trading history also plays a vital role in securing a commercial mortgage. If you’re buying retail space, prior trading experience in retail will help your case massively. Loan providers are less likely to provide 100% LTV loans to a newcomer to the trade they’re hoping to enter.
High street banks normally require three years’ worth of filed trading records in order to consider an application.
Overall investment viability
Coming over a strong-willed, determined, and well organised will definitely increase your chances of attaining a business mortgage. You should be able to explain your business plan precisely and have clearly defined backup plans in place should things go wrong.
Every business mortgage is unique, and your ability to make your business model stand out as a viable investment to the provider could convince them to see past a poor credit rating or lack of additional security.
Where to get a Commercial Mortgage
The above conditions could determine where to best apply for a commercial mortgage. The three main suppliers of commercial mortgages are high street banks, niche lenders, and challenger banks, each of which comes with its own pros and cons.
High street banks
The most trustworthy lenders of commercial mortgages, banks can offer high commercial mortgages with high LTV and good rates. However, high street banks have very strict conditions and generally require applicants to have a good credit and trading record, plus a healthy cash flow and a high level of income.
Plus, commercial mortgage applications for high street banks tends to be considerably longer than that of niche lenders and challenger banks. An applicant can typically expect to spend around three months waiting on the approval or rejection of their application.
Niche lenders are the best commercial mortgage option for those who are new to the business, those with a poor credit score, or those who generally need more flexible terms when it comes to their business loans. The criteria of affordability offered by niche lenders tend to be significantly lower than that of both high street banks and challenger banks.
If you are able to provide a niche lender with an accurate profit forecast and business plan, you may be able to attain a commercial mortgage before you even start to trade. Generally, niche lenders look at projections more than they look at trading history. They also can provide you with a commercial mortgage quickly.
The drawback of niche lender commercial mortgages is that they tend to be much more expensive in the long run, with higher exit fees. Although it’s less likely to get a 100% LTV commercial mortgage from a niche lender, it’s not impossible.
A challenger bank is a small retail bank that challenges retail banks by offering better commercial mortgage deals, amongst over services. Like niche lenders, challenger banks are far more likely to offer mortgages to those with bad credit scores and a lack of trading history.
Challenger banks may also offer you an interest-only commercial mortgage, which is ideal if you’re investing in property to better your cash flow rather than to make commercial gains.
The downside of challenger banks is that they are less likely to offer 100% LTV and tend to have higher exit fees.
How To Apply For A 100% Commercial Property Mortgage
The best way to apply for a 100% LTV commercial property mortgage is to consult a mortgage broker, which can be arranged through the Loan Corp. Once a commercial mortgage lender has been selected, you’ll normally need to provide the following in order to apply:
- A completed commercial mortgage application form
- Proof of income, address, and identity
- A statement regarding your assets and liabilities
- Bank statements dating back several months
- Audited financial accounts
- Property details, including lease and tenancy agreements
- A business plan, including projections and profitability.
Potential Fees Involved
Although you won’t have to pay anything upfront in the case of a 100% LTV mortgage, there are some fees you will have to pay off, whether your mortgage gets approved or not. Potential fees include:
The property you intend to buy will have to be assessed by a professional valuer, and the valuation fee covers the cost of this. Luckily, valuation fees tend to be a lot lower for commercial property than residential property assessment and can cost as low as a few hundred pounds.
This covers your own solicitor’s fees as well as the legal fees of the lender. It may only cost you a few hundred pounds to pay off your own solicitor.
The arrangement fee is the price you pay the creditor for arranging the mortgage and tends to be around 2% of your total loan amount. It is sometimes paid upfront or gets added to your mortgage repayments.
A broker helps you find the best mortgage deal for your specific needs, and the broker fee is the price you pay for this service. Generally, this fee tends to be 1% of the total value of the mortgage.
Commercial Mortgage Alternatives
If you decide that a commercial mortgage is not the best option for your business, there are a number of other business loans you can apply for to finance your enterprise, including the following:
It is possible to find lenders who offer personal loans that can be used for business purposes. It’s best to consult a specialist broker in order to find out whether the loan can be used for business purposes and what restrictions are put in place. Personal loans tend to range between £1,000 and £25,000.
Specialist lenders can provide businesses with short-term loans, which are typically used to cover working capital, including the likes of staff wages and operational costs. Short-term loans tend to be below £25,000 and are normally required to be paid back within two years.
If you require cash flow assistance immediately, a bridge loan could be your best option. Bridging loans are used to ‘bridge the gap’ in your business finances, for example, between buying new business premises and selling another. The new property tends to be used as collateral, and high interest rates are normally put in place.
Bridging loans tend to start at around £25,000. Get a bridging loan quote from the Loan Corp.
Contact Us Today To Discover Your 100% Commerical Mortgage Options
The Loan Corp is a brokers firm that specialises in securing the best bridging loan deals for clients.
With over 200 lenders, the Loan Corp is guaranteed to find you a list of potential lenders that are befitting to your financial situation, credit rating, and business projections.
We can also offer a number of other independent broker services, including finding you commercial mortgages that offer 100% loan to value, attaining development loans, and applying for auction finance.
Can I get a commercial mortgage without a deposit?
It is possible to get commercial mortgages without a deposit, in what is known as a 100% loan to value business mortgage. This type of business mortgage doesn’t require you to pay any of the loan to value, which is commonly expected with most commercial mortgages.
Instead, you are expected to pay higher interest rates, bigger monthly mortgage repayments, and be able to provide additional security. The property that you are buying will act as the main form of collateral, but the lender may also require additional collateral such as other properties that you own, as well as other personal and business assets.
How can I find a commercial mortgage lender that offers high LTV ratios?
The best way to find a commercial mortgage lender that offers high LTV ratios would be to consult a commercial mortgage broker, like the Loan Corp. A commercial mortgage broker will be well connected with the leading lenders and will be able to assess your situation and match you accurately.
What is a typical deposit size for a commercial mortgage?
Typically, you’ll have to make a mortgage payment upfront of around 20-30% of the loan to value ratio. However, by providing additional security and with the assistance of a commercial mortgage broker, you could manage to be offered a 100% LTV commercial mortgage.