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Commercial Mortgages: laying the foundation for business growth

Commercial Mortgages: laying the foundation for business growth

Buying, rather than renting, can be a welcome dose of certainty in uncertain times. For every business working from rented accommodation, there is a point where it may be more advantageous to purchase your own premises. This decision may be driven by a requirement for more office or storage space, or influenced by your landlord seeking to raise your rental agreement.

A commercial mortgage offers several advantages over financing a property purchase from capital. Agreed monthly payments make cash flow forecasting easier while the interest portion of the repayments is usually tax-deductible, although this is down to your personal circumstances and is subject to change in the future. Commercial mortgage loans can also offer security and financial benefits. Businesses can maintain greater control by having the necessary working capital to invest towards driving growth and expansion and if the property increases in value, business capital will go up.

The decision whether to buy rather than rent can be a pivotal moment in enabling your business to prosper so it is essential to look at the pros and cons before committing. Good research is vital to find the right premises which will meet both your immediate and future needs. Is the property situated in the right location for your type of business? Is there room to expand if the business grows? Is the building easy to maintain or will it need constant attention? Can you visualise yourself being there in five, ten or 20 years' time?

Having located your preferred property, the next step is to select a commercial mortgage solution which is tailored to your business's needs. There are a multitude of commercial mortgage products on the market and financial providers offer a variety of options. These will typically include the minimum figure they will lend against the value of the property (referred to as loan-to-value), different repayment periods and the availability of fixed or variable interest rates.
Selecting the right commercial mortgage is just as important as finding the property itself. Some specialist lenders offer makeweight security options. For example, if you are looking for a 75% mortgage against a commercial property but can't put down the 25% deposit, niche financial providers may make up the outstanding deposit by taking another charge against a property you may own.

Whether it's to procure a solid foundation for your business to grow on, or to protect yourself from rising and restrictive rental agreements, a commercial mortgage could make a lot of sense.

Five top tips when selecting a commercial mortgage

  • Not all commercial mortgages are created equal. Some alternative finance providers can offer greater flexibility, so shop around to get the best deal for your business.
  • When opting for a finance partner, make sure you have access to a dedicated point of contact that fully understands your business.
  • Gather all relevant financial documents before approaching a lender as you will need to demonstrate that you can comfortably afford the monthly repayments.
  • Ensure you are familiar with the premises of the commercial property you wish to purchase (size, number of units, location etc.) as this encourages confidence from the financial provider.
  • Decide how you will be utilising the commercial property as this will influence the terms and conditions you are able to negotiate.

A case in point - The Fresh Accountancy Company

Based in Exeter, The Fresh Accountancy Company provide a range of accounting and financial services. Established in 2011, initially out of Founder and Director Tom Baker's home, the firm moved into rented office space following the employment of three full-time staff. After a period of rapid growth, Tom discovered larger premises had become available in a more visible location on a busy road which was ideal to support his expanding number of clients and employees.
The Fresh Accountancy Company subsequently selected a commercial mortgage solution comprising a six-figure loan over a term of 25 years to purchase the modern and spacious building. From start to finish, the transaction was completed in six weeks.

"Although there is a big cash commitment in terms of putting down a deposit to get a commercial mortgage, if you decide to continue to rent you will probably exceed the amount of money you would pay on a mortgage due to commercial rents being quite high compared to interest rates at the moment," explains Tom.

Your property may be repossessed if you do not keep up repayments on your mortgage.

The Financial Conduct Authority does not regulate commercial mortgages.

Find out more:

Commercial mortgages for professionals

Commercial mortgages for SMEs

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