How to buy your business premises with a commercial mortgage

A recent survey carried out by HSBC bank found that 40% of UK companies between 6 and 10 years old still lease their business premises. Whats more, 70% believed that owning their own premises would have a positive impact on business growth.

What are the advantages of owning your business premises?

For most businesses making the move to owning their commercial property, finance will be required known as a Commercial or Business Mortgage. You can use a commercial mortgage for a number of purposes, but the most common is to enable the purchase of business premises.

The advantages of buying your business premises include:

• Repayments on commercial mortgages are often at comparable levels to the rent on the same property
• No unexpected rent increases
• You can sub-let space or offices to other businesses to generate extra revenue
• Interest payments on commercial mortgages are tax-deductible
• Any increase in property values will increase business capital

Is a commercial mortgage right for your business?

Commercial mortgages can be arranged for most established businesses but you are more likely to benefit with the following factors in your favour:

• The business is profitable and has been trading for at least five years
• The business can show a consistently busy order book and repeat customers
• The business is run by an experienced team whether small or large

With interest rates still low and a stable economic climate, now is a good time to consider using a commercial mortgage to benefit your business.

How do commercial mortgages work?

The requirements for a commercial mortgage are more stringent and complex than for a residential mortgage. However the market is changing fast with increased competition driving down costs and increasing the range and flexibility of commercial mortgage products.

For the majority of small to medium businesses, lenders will advance a maximum of 85% of the property value although this will depend upon the building location, construction and purpose plus the current trading position of the business.

Legal and application costs of commercial mortgages are higher than residential mortgages and its important to understand the potential pitfalls to ensure you secure a good deal. The first port of call for most businesses will be their bank but, in many cases, this can result in higher rates, charges and deposits. Bank commercial mortgages are often far less flexible than specialist lenders can provide.

As with any financial product, its prudent to shop around and take the advice of a few commercial mortgage brokers who can compare your needs with a range of lenders.

What deals are available?

A typical commercial mortgage has a term of 25 years much like a residential mortgage loan and will advance up to 85% of the purchase price.

Lenders typically charge a fee of between 1% and 1.8% for standard rate deals which can increase up to as much as 4% or more for businesses with trading problems or other issues which increase the lenders risk.

Other factors you should consider

• Can you provide a deposit of at least 15%?
• Are you happy to keep you business located in its current location for the medium to long-term?
• Could you cope if interest rates increased substantially during the commercial mortgage term?
• Have you considered the cost of ongoing property maintenance etc?
• Are you comfortable with the risks?

Where to get further advice

If you feel that a flexible commercial mortgage could help your business to prosper and want to find out more, contact Cash4business Commercial Mortgages.

Alternatively, contact the National Association of Commercial Finance Brokers.