Commercial Mortgages Explained

When I talk to clients about mortgages, one of the most common questions I get is: “What exactly is a commercial mortgage?”

A commercial mortgage is a loan secured against property that’s used for business purposes. Unlike a residential mortgage, which is designed for people buying homes, a commercial mortgage is tailored for companies, investors, and entrepreneurs purchasing offices, shops, warehouses, or mixed‑use premises.

From my experience, these loans often come with different lending criteria, which are for ever changing. They’re a powerful tool if you’re looking to expand your business, secure premises, or invest in property.

Commercial Mortgages, Equipment Financing, and Cashflow Financing

I often remind clients that commercial mortgages don’t just cover property. Many lenders also offer allow it to be used for equipment financing and Cashflow finance. This means you can purchase essential assets — machinery, vehicles, or IT systems — while spreading the cost over time. Or invest in your people with a cash injection.

Having seen businesses manage cash flow more effectively and invest in growth without draining reserves. It’s especially useful for industries like manufacturing, logistics, and construction.

Commercial Mortgage Eligibility

When I assess eligibility for a commercial mortgage, I look at several factors:

• Business structure: Limited companies, LLPs, and sole traders can apply. Lenders usually prefer established businesses with at least 2–3 years of trading history.

• Creditworthiness: Both business and personal credit scores matter.

• Financial stability: Lenders want to see accounts, cash flow, and projections. Start‑ups may still qualify, but often need personal guarantees.

• Deposit size: Typically, you’ll need 20–30% of the property’s value.

  
  

How Does a Commercial Mortgage Work?

Here’s how I explain it to clients: a commercial mortgage works much like a residential loan, but with some key differences.

• Loan‑to‑Value (LTV): Usually lower, often capped at 80–75%.

• Interest rates: Typically based on a risk assessment from the information you provide.

• Terms: Repayment periods range from 5 to 20 years, with 15 years being common.

• Repayment options: You can choose capital and interest or interest‑only, depending on your situation. You can also request 6 month repayment holiday.

The property acts as security, and sometimes lenders ask for additional guarantees depending on your financial profile.

How Much Deposit Do I Need for a Commercial Mortgage?

This is another question I hear all the time. Most lenders require 20–35% of the property’s value, depending on the risk profile and industry sector.

For example:

• Standard commercial property: 20–35% deposit.

• Industry sector that are deemed higher risk will such as construction and retail may need larger deposits.

• In some cases, lenders will offer up to 90% of the property value (10% Deposit

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Final Thoughts

From my perspective, commercial mortgages are one of the most cost effective ways of borrowing and growing the business. Whether you’re buying premises, financing equipment, or investing in property, understanding eligibility, deposit requirements, and how these loans work is essential.

I always recommend working with a specialist broker, it’s the best way to access tailored deals, avoid delays, and secure funding that matches your ambitions.