Commercial Mortgages – What Makes a Property Suitable?

Why do people want commercial mortgages? In most cases, it will be to obtain a property that meets the needs of their business.

Of course, what makes a property suitable for a commercial mortgage will depend largely on the nature of your business – for instance it will be different according to whether it is a factory, a pub, retail premises or a building providing office space.

So obviously, the first question you have to ask if you are evaluating premises for a commercial mortgage is: will this property be suitable for my business?

Other questions you need to ask are:

Does it provide adequate space including potential for growth of the business? It needs to be big enough, but not TOO big – otherwise costs of maintenance will eat into your profits (unless there is potential for renting out sections of the building to other businesses).
Is the location right? Is there reasonable access for both suppliers and customers? Is the location appropriate for the intended use of the property? A building for a retail store, however suitable in itself, isn’t going to attract sufficient customers if it is located on a farm or in a rural village.
Is there adequate parking space for staff, suppliers, and customers if applicable?
If the project is a new business start-up, are the local people likely to oppose it? Opposition might arise because of noise, smells, increased traffic etc., or because the building is out of character with the neighbourhood. It’s wise to obtain at least outline planning permission before applying for your commercial mortgage.
Is the property in good repair, or is it going to need a lot of refurbishment/ You will need to have accurate estimates of the costs of any work that will be required. Likewise, is the property already used for a similar purpose to what you will use it for, or is it likely to need a lot of adaptation?

All lenders approached for commercial mortgages are going to ask these questions, so you need to ask them first! If the lender isn’t satisfied that the property is really suitable for your business, they will have doubts about your ability to repay the loan.

So in your enthusiasm to get started, don’t grab the first property you find. Look at it through the eyes of a lender of commercial mortgages and evaluate it in the light of your future as well as your present needs. It’s not just in the interests of the lender – it’s in your interests too!

Please note that the FSA do not regulate commercial loans or commercial mortgages

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