Commercial mortgages may be obtained for buying property to be used for your business. However they can also be used for raising capital for your business to be used in all sorts of ways – expanding, buying new equipment, or employing more people. They are secured on the assets of your business – usually either bricks and mortar, or equipment.
If you are a sole trader you will be personally liable for the repayment of the commercial mortgage, and your liability can extend to your personal property as well. If you are a limited company, your personal assets can still be at risk if you have provided a personal guarantee.
Unlike a business start-up loan, which is usually a short-term loan, a commercial mortgage can last for 25-30 years.
The interest payments on a commercial mortgage are generally allowed to be set against tax by Her Majesty’s Revenue and Customs. However you must always check with your Accountant. You can find yourself in trouble if HMRC considers that you have used the funds for a non-approved purpose.
In cases where commercial mortgages are used to raise extra capital for a business, rather than for buying property, lenders may offer to refinance a current mortgage. They may increase the amount of the current mortgage, or set up an equity line whereby you can raise the money on the equity you have in your business.
As with any mortgage, it helps to have good credit, and of course the better the collateral the more straightforward the process will be. However, if you lack a perfect credit record, there are certainly lenders who will provide you with a loan – though it may be at higher rates. And if your collateral is not seen as sufficient in itself to secure the loan, you could be asked to provide further security such as your private home.
By far the best person to give you advice on commercial mortgages is a commercial mortgage broker. The broker can find a wide range of lenders and highly competitive deals. You will find that there is no reason to be nervous about commercial mortgages – they are there to give you the best possible start for your business.
Please note that the FSA do not regulate commercial loans or commercial mortgages