A business or commercial mortgage is like a home mortgage secured against a freehold or leasehold property. Although there is not as much choice as the home mortgage market there are more products coming onto the market all the time. Generally speaking commercial mortgages offer up to 75% of the value of a freehold property or 50% of a leasehold property. The leasehold mortgage will depend more on the length of the outstanding lease, hence the smaller percentage. The term of business mortgages is usually between 15 and 25 years although there are certainly exceptions at both ends of that scale.
The terms of a mortgage will depend largely on the business and its recent and projected performance. All mortgage lenders will have to quote what is known as the cost of comparison. This is a figure that all lenders must provide when marketing or referring to their mortgage product. Its purpose is to show the yearly cost of a mortgage as a percentage of a percentage of the loan itself. It incorporates all the fees payable throughout the term of the mortgage. It provides a reliable figure so prospective customers can compare mortgage products using a reliable figure and not one that can be easily manipulated by the lender.
Mortgages lenders will provide mortgages to businesses for a number of reasons not just to buy or build new premises. If a business needs to improve their existing premises then they could look to secure lending against those premises. Also, if a business is looking to expand then again most lenders will provide funds through a mortgage secured against the freehold value of the business.
There are many specialist mortgage companies who provide mortgages for different sectors. Any type of business that relies on its premises can probably find a number of these specialist lenders. Businesses like pubs, restaurants and hotels are constantly changing hands and so financing the purchases of these types of businesses is competitive.
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The articles on this site are for general information purposes only and should not be construed as advice under the Financial Services and Markets Act 2000. We strongly advise that you take appropriate professional and legal advice before entering into any binding contracts.