When You Need to Apply for Commercial Mortgage

By: Cathrine Black

If you decide to buy property for your business, you will probably need a commercial mortgage. Before you take one out, it is essential that you consider the maximum monthly mortgage repayment your business can afford. You should also take into account the potential growth of your business, as relocating too often can be costly.

A Commercial Mortgage is a loan secured against a Commercial Property. In general terms most lenders will offer finance up to 85% of the property value (85% LTV). In some instances certain lenders may be able to offer products up to 100% LTV.

Mortgage loans of this type are tailor made for purchasing any commercial property used for business purposes including shops, factories, offices and warehouses. Commercial mortgages can also be used for taking over an existing business, purchasing a brand new building or buying land.

Although they often come with higher interest rates and more variables than residential mortgages, commercial mortgages are more flexible and can carry extra incentives for borrowers. With commercial mortgages, the lender has a legal claim over the property until the loan has been fully repaid.

A Commercial Mortgage is flexible - you could use it for a range of purposes and apply even with poor credit for commercial bad credit mortgage, from purchasing your premises to releasing the equity locked in your property for business uses. You could free up your cash flow by taking advantage of an initial repayment holiday of up to 24 months. To cover against death and/or critical illness, you can take out optional cover through Barclays Financial Planning.

There are considerable advantages of commercial mortgage:

* you may be able to sub-let any free space that you might have - however, you will almost certainly require permission from your lender to do so
* your mortgage repayment is likely to be similar to a rental payment on the same property
* interest payments on a commercial mortgage are tax-deductible
* you aren't exposed to any hefty rent increases
* any gain in value of the property will increase your capital

There are also disadvantages:

* if you own premises it's far harder to relocate your business, extracting yourself from a rental agreement is much easier than selling premises or finding a new tenant to take them over
* unlike renting, you'll need to come up with a substantial deposit - this is money that might be used for more important business purposes
* any loss on the value of the property will decrease your capital
* if you have a variable rate mortgage, you are exposed to increases in interest rates
* owning a property means you'll be responsible for factors such as maintenance, fixtures and fittings, decoration and security

Commercial loan products are available for people with all types of credit history, including those with CCJs, mortgage arrears, and IVA and bankruptcy (providing you have been discharged). Those people can get commercial bad credit mortgages and for those with irregular income self-certification of income can be achieved if you do not have up to date accounts and business plans.
Commercial mortgage fees and costs.

Interest rates vary according to the lender, your credit history and the repayment options you choose. For bad credit mortgages you will get higher interest rate.

Other fees and costs include:

* Arrangement or processing fees
* Valuation fee
* Redemption penalty
* Legal and professional fees

There are certain other factors of which you should be aware when you apply for commercial mortgage:

* minimum level for the loan
* period of grace
* personal guarantee

Remember, usually the maximum amount of loan is 80 per cent of the market value of the property, and is subject to normal credit checks. There are some limitations for certain industries. You must own and occupy the property that you are offering as security.
A legal charge over your property will be required.

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