October 15th, 2013. Ben Lloyd
How do commercial mortgages work?
If you’re a property developer looking to renovate an old property or a business looking to purchase your own office building, you will need to acquire a commercial mortgage.
Having a commercial mortgage will give you an influx of cash without having to sell off your other assets or pay huge costs upfront.
It’s important that you know how commercial mortgages work before your business decides to secure one. Here’s a helpful breakdown:
In short, they’re similar to residential mortgages
Securing a commercial mortgage as a business is remarkably similar to an individual gaining finance towards a house. For both types of mortgage the property will be used as collateral by the lender against the loan, if there is a case of default the lender will then repossess the real estate.
Not just for buildings
Many people assume that a mortgage is just to purchase a ready built property and the land it sits on, but this is not the case. Commercial mortgages can be used by companies who simply want to invest – maybe they need more money to take on more staff, or possibly bring in new and improved equipment. Property developers often take out commercial mortgages to allow them to purchase a plot of land and build upon it.
Less risk than a business loan
When companies are looking to acquire a loan, they want to find the one that is the most financially beneficial. Typically, commercial mortgages have much better rates than traditional business loans as they use the property as collateral. Therefore, the lender is taking much less of a risk and will be able to provide a larger sum at lower interest rates than a normal loan.
Find the right lender
Just like with residential mortgages, lenders are very picky about who they lend money to. It’s important to either do your research or seek the help of a broker to find the right lender for you – one that is likely to accept your business for a mortgage.
As with a residential mortgage, the interest rates will vary from lender to lender with a commercial mortgage, so it’s important to shop around for the best deal if you are going to save your business some precious pennies.
Be on the lookout
Before you commit to a mortgage with a lender, you will want to check them out to make sure they are reputable. Find a lender you can trust; a company who has been around for a while and has recommendations from real clients to ensure you are in safe hands with your business finance.
Talk to us today about your business needs so we can advise on your commercial mortgage options.
Article By Ben Lloyd
October 15th, 2013
Ben is the Director and Co-Founder of the Pure Group and Managing Director of Pure Property Finance.
Following a career in Barclays, where Ben was in the real estate finance team for 8 years, he decided that the market needed a more forward-thinking type of commercial brokerage so founded Pure Commercial Finance (now Pure Property Finance), the first company within the Pure Group.
Ben has extensive experience across the real estate sector and has participated in over £2bn of real estate transactions during the course of his career.
Ben oversees the general strategy at Pure Group and works with the senior leadership team to drive the Group forward. Ben is also on the Executive Committee of FIBA.See more articles by Ben