Before taking out a commercial mortgage there are several things you need to consider.
Commercial Mortgages
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Loans specifically designed for businesses to acquire commercial property
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Commercial Mortgage Advice
A commercial mortgage is a loan specifically designed for businesses to purchase or refinance commercial property. It functions similarly to a regular mortgage, but with some key differences tailored for business needs.
The Financial Conduct Authority does not regulate some forms of buy-to-let mortgages.
Different Types Of Commercial Mortgages
Owner – Occupied
Commercial Investment
Semi commercial
Limited Company Buy-To-Let
Operating Company / Property Company structure
Focus On Future Business Performance
Key Metrics
commercial mortgage lenders assess affordability differently from residential mortgages due to the focus on future business performance. Here’s a breakdown of how they evaluate your ability to repay the loan:
EBITDA (Earnings Before Interest, Tax, Depreciation, and Amortisation):
This metric shows your business’s profitability before accounting for financing costs and non-cash expenses. Lenders will often adjust your net profit by adding back these non-cash expenses to get a clearer picture of your cash flow generation capacity.
Debt Service Coverage Ratio (DSCR):
This ratio compares your business’s EBITDA to its annual mortgage repayments. It indicates how easily your business can cover the mortgage payments with its operating income.
Extra Business Evaluation Information
Additional Factors
Business Financials
Lenders will analyse your business plans, past financial statements, and tax returns to assess your financial stability and growth potential.
Rental income (for investment properties)
If the property is intended to generate rental income, lenders will assess the rental income stream to ensure it comfortably covers the mortgage repayments.
Credit History
Both the business’s and the directors’ creditworthiness will be considered.
Property type and location
The type of property (retail, office, warehouse) and its location can impact the risk assessment and influence affordability.
