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Commercial Loans UK- Invest And Expand Your Business
It is very rare for a business to grow rapidly without at some stage having to borrow money. Usually at some stage in the growth of a business there will be a need for capital and the business will turn to various sources of commercial borrowing.
Commercial mortgages are more complicated than residential mortgages and there a less safeguards in place and so we would always recommend taking independent advice from an independent financial adviser that deals in commercial mortgages (not all do) or a specialist commercial mortgage broker.
There will be two basic factors that will influence the ability of the business to borrow and the rate at which it can borrow. These are
1) Security
2) Profitability
In general both have to be available and strong for the commercial mortgage to be offerred at the lower rates.
Security
The best security from the point of view of a lender is normal bricks and morter property. The more easily marketable the property is the better. This can include residential property such as a house or flat that is let to a tenant but is most commonly shops, offices and light industrial units. Any building can be offerred as security but if the building is very specialist in nature it may be less marketable and so less attractive as security.
In some unusual cases a business might have very strong accounts and not have security available. Banks can lend sometimes quite large sums to business unsecured but only where the cash flow and profit of the business is very strong and where there is a strong business plan for the future.
Profitability
Profit is absolutely key for a commercial mortgage lender. Without sufficient profit how can the loan be afforded. An unaffordable loan benefits neither the borrower nor the lender. Lenders will want to see and analyse accounts and an independent financial adviser that deals in commercial mortgages will be able to assess how strong are the accounts.
How much do Commercial Mortgages Cost?
The main consideration is generally the interest rate and most commercial mortgages are priced at a percentage above the Bank Base Rate (BBR). For example of the BBR is 5.5% per annum the commercial mortgage rate might be 2% above, ie. 7.5% per annum. This means that commercial mortgages offerred are tracker mortgages and the rate the borrower pays will vary as the base rate varies. It is however possible with most commercial mortgage lenders to negotiate a fixed rate.
Unlike residential mortgages, with which most business people are familiar, most commercial lenders do not offer commercial mortgages with published fixed rates. Instead the prevailing fixed rate will be calculated by the lenders treasury department and then offerred to the borrower. So it is usual to negotiate a percentage above bank base rate first and then request the option of a fixed rate.
If the security and profit of the business are very strong it is sometimes possible to obtain a rate as low as 1% per annum over the bank base rate but these are quite rare. Typically the rate will be 2% over the bank base rate or more. 3% or 4% per annum over bank base rate offers are quite common so expect a commercial mortgage to be at a higher rate than any residential mortgage.
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