Finance Blog | Commercial Lending, Essex, London | first 4 Commercial

A Quick Guide to Commercial Mortgages

What is a commercial mortgage?

A commercial mortgage is loan used to buy a commercial property, such as an office building, industrial factory, or retail space. This type of mortgage differs from a traditional residential mortgage, typically being a much larger loan that comes with higher interest rates and costlier deposit.

What are the benefits of a commercial mortgage?

The main advantage of a commercial mortgage is the amount you can borrow. As the loan is designed to pay for a commercial property or purchase an entire business, the value of the loan is significantly higher than other lines of credit, such as a residential mortgage or business loan.

As a result, commercial mortgages allow businesses to grow and expand their operations, whether it’s investing in new property or taking over a smaller business.

Understanding commercial mortgage rates and borrowing amounts

A commercial mortgage usually comes with a minimum borrowing amount, typically around £50,000, as there are high administrative costs associated with loans of this amount.

Furthermore, lenders require borrowers to provide a percentage of the loan in a deposit, which varies from around 20% to 40% depending on the lender. So, any business looking for a commercial mortgage must have cash reserves to pay the deposit.

Also, commercial mortgage interest rates are either fixed or variable, meaning there are various options available for loan terms and interest rates. The length of the loan can vary significantly too, with mortgages available for just a few years and other that last for decades.


A Quick Guide to Business Loans

What is a business loan?

A business loan is a type of loan provided to commercial organisations seeking to expand their operations. Available as a short or long-term loan, business loans are used for a variety of business expenses, such as hiring new staff, purchasing new inventory, moving property, or paying off debts.

What are the benefits of a business loan?

A business loan offers a range of benefits for an organisation, from providing an injection of cash flow to providing some financial respite during tougher times. Also, business loans come with various terms to suit each type of business, with both long and short-term borrowing options available.

Newer businesses can better establish their organisation with a business loan, while others can use the loan to growth their business further, so there is no end to potential advantages of a business loan.

Types of business loans

When applying for a business loan there are two options available – secured and unsecured.

A secured loan involves borrowing money against a certain asset as a form of collateral. Should the loan not be paid back on the agreed terms then the lender may sell the asset to pay off the debt, making it a riskier option for a business.

Unsecured loans are the opposite, allowing a business to borrow money with needing to use a company asset as a form of collateral, therefore being viewed as a far more low-risk type of business loan.


A Quick Guide to Bridging Loans

What is bridging loan?

A bridging loan is a type of short-term designed to bridge the period between due payment and available credit. Perhaps the most common use of a bridging loan is to purchase property before a mortgage has been cleared, making a very useful form of credit in various situations.

Bridging Loan Benefits

The main benefit of a bridging loan is being able to make a quick purchase while waiting for a line of credit to clear.

For example, if you want to buy a property that is only available for a short period, but your mortgage application has yet to be approved, then a bridging loan can be used to bridge the gap between buying the property and receiving your mortgage.

Another example of this would be buying a new property before your current home has sold. As this can take longer than anticipated, a bridging loan allows buyers to purchase a new property while awaiting the sale of their current property.

Bridging Loan Rates

It is important to understand the rates of a bridging loan.

As a short-term loan, bridging loans come with higher interest than most other loans, especially mortgages, with an average monthly interest rate of around 4% in most cases.

Also, admin fees are commonplace for bridging loans, so be mindful that there are additional costs compared to a mortgage.

That said, as bridging loans are intended for short-term use only, the higher interest rates aren’t as expensive if you pay the loan off as soon as you secure a mortgage or sell your property.


How to Choose a Mortgage Broker

When securing a mortgage finding the best deal could potentially save hundreds towards your monthly payments. A mortgage broker can get a fantastic deal for a mortgage and help save thousands, so it’s often a worthwhile investment, providing you choose the best broker to secure your mortgage!

Here’s some tips for how to choose the best mortgage broker:

Do your research

You can find a great mortgage broker online with a bit of research, so be sure to start here to check for potential candidates. Search for ‘mortgage broker near me’ in Google to a find a nearby practice, as this is the best bet for finding a broker than knows your local market, which is important for getting a good deal.

Are they paid by commission?

You can either do this during the research phase or simply contact them directly to find out their fees. Most brokers are paid by commission of the loan amount by the lender, typically 0.35% of the transaction value, but this won’t impact the overall fee of your mortgage.

Do they charge a fee?

There is also change that the broker will charge a flat free on top of the commission, although some charge a fee and waver the commission entirely, while some let you choose between both. Never go with a broker charging more than 1% and consider if their rates could pay for themselves in the money they could save on your mortgage


Always ensure the broker is suitably qualified! Not all come with the same level of qualifications, and some don’t even have any, so always look for a qualified broker as they are more likely to provide the best service possible.


What Does a Mortgage Broker Do?

Applying for a mortgage is never an easy process. Whether a first-time buyer or applying for refinancing, mortgage applications are a long, complex process that can leave you tearing your hair out for weeks on end.

Yet there are ways to avoid the stresses of mortgage application, such as a hiring a mortgage broker. An expert in mortgages, a broker offers a range of services that makes the application process far easier, such as searching for deals, contacting lenders, and negotiating rates and fees.

Here are some of the services available from a mortgage broker:

Free Mortgage Advice

Mortgage brokers offer a wide range of advice regarding a mortgage, much of which is completely free of charge. For instance, if you have yet to apply for a mortgage you can still receive free advice from a broker before hiring their services.

Because some brokers get their final fees as a commission from a mortgage lender after the loan is fully processed, it’s possible to get free mortgage advice from many reputable brokers.

Mortgage Application

One of the main services of a mortgage broker is loan application. After a broker recommends certain mortgages, they then make applications for said loans on the borrower’s behalf. This includes the various paperwork required for an application, as well as speaking with lenders on your behalf on the various aspects of the application.

Mortgage Negotiation

Applying for a mortgage is only half the work of a broker – they also negotiate most of the loan deal. This ranges from getting the best terms possible on the mortgage to helping waver fees for certain aspects of the loan. As they are well connected with lenders and other industry insiders, a mortgage broker’s ability to negotiate a better mortgage is viewed as one of their strongest assets.


Things to Know About a Business

Anyone looking for a business loan has likely been told about the difficulties of securing this type of credit. Due to the high risk for a lender, most business loan applications are rejected, leading to the belief that it is almost impossible to get this type loan.

Despite this, there are many benefits of getting a business loan, and it’s often easier to get approved than many expect. Here are some useful things to know about a business loan!

A business loan is usually cheaper than a personal loan

On of the reasons that a business loan is tougher to get approved than a personal loan is that they are usually cheaper in the long term. Given the wide range of business loans available, it’s possible to get a loan with the right terms that make it far cheaper than getting a personal loan with a similar amount

A business loan can be better than using savings

Those that don’t receive approval for a business loan may use their savings to cover some of the expenses instead, but this is a risky move and one worth avoiding when possible.

Personal savings tied up in a business severely restricts what you can do with your money, espiecally if an emergency where to occur, be it personal or business related. Because borrowing rates are usually quite cheap for a business loan, it’s almost always better to use one as opposed to your savings.

You can get a business loan with bad credit

It’s a common misconception that you cannot get a business loan with bad credit, but if you prove to a lender you can make the repayments and they are confident in your ability to do so, it is more than possible to secure a business loan with bad credit.


Advantages of Bridging Finance

Bridging finance is a type of short-term loan used to bridge the gap between two loans, typically when buying a new property before a current property has sold. A bridge loan is not always recommended due to the high interest of the loan, but when used correctly in specific circumstances it can be advantageous for the recipient.

Let’s take a closer look at some of the main advantages of bridging finance:

Short-Term Finance

Bridging finance is never long-term, so with a short-term loan there are often fewer risks, as you’re going to pay it in less than year in most instances. In fact, not many bridge loans last longer than year, so it can be paid off in a very short period, usually once your current property as sold or the finance from a mortgage as been cleared.

Fast Purchasing

One of the main benefits of bridge financing is making a fast purchase. Because a bridging loan is cleared very quickly, it allows buyers to purchase a property they may not have been able to because they are still waiting to sell their home or for their mortgage to process, so can avoid possibly losing out on the chance of buying a dream home.


Most types of bridging finance are very flexible, allowing the borrower to pay of the loan in a way that best suits them. This can be in the shape of monthly instalments or paying off most of the loan once the appropriate finances have been acquired.


What is a Semi Commercial Mortgage

A semi commercial mortgage features aspect of both residential and commercial mortgages. It’s not the most common type of mortgage due to the unique circumstances a property requires to quality for a semi commercial mortgage.

To qualify for this type of loan, a property needs to be both residential and commercial. This typically comes in the shape of a small business that has a commercial area on the ground floor and a residential area above the business.

Because on part of the property is used commercial while the other is used as a personal residence, a semi commercial mortgage can be arranged to accommodate the unique circumstances. Common examples of a property with semi commercial elements would be a pub or shop on the ground floor and a flat on the top floor.

Loan amounts are similar to commercial mortgages, typically falling between 60% and 75% of property value, while lenders calculate the criteria of the loan in the same manner as a commercial mortgage, basing it around the accounts, profits, and business plan of the borrower.

Some lenders provide 100% semi commercial mortgages, although you do require a form of additional security, which is most typically owning another property. Many businesses looking to expand use this to their advantage, especially when renting the property to residents.

In fact, a semi commercial mortgage is treated as a type of commercial mortgage by lenders, meaning you need to seek out a commercial mortgage financier to acquire such a loan.


What are Commercial Finance Brokers?

Trying to get a loan to buy a business is rarely easy. Trying to acquire a commercial loan from a borrower is a time-consuming, and often stress inducting, process.

There is a lot of back and forth between the individual borrowing and the lender, which is typically a bank or building society, leading many to hire the services of a commercial finance broker.

What is a commercial finance broker?

A commercial finance broker is someone that works to get the best possible financial solution for clients seeking a business loan. People hire the broker as the go-to between them and a borrower, helping to find the best possible deals for securing a business loan.

What does a commercial finance broker do?

A commercial finance broke is an expert at finding the best rates and deals for any type of business loan. They have contacts in the industry that allows them to procure better deals than most people cannot usually find themselves

They’ll speak with lenders, conduct market research, and generally do everything they can to secure the best rate possible for a business loan. Furthermore, a commercial finance broker does much of the leg work for securing a business loan.

There is a lot information required to secure such a loan, and the broker can work diligently to get all the necessary information, best pitch your business plan to the lender, and avoid mistakes that could see the loan rejected.

In most instances, they use their connections to fast-track the application process and greatly improve the chances of getting the desired loan.


Tips for Getting a Business Loan

Getting a business loan is far more difficult than securing a personal loan, as there are much higher risks when lending to a business. There are stricter rules in place for getting a business loan, which became even harder to qualify for after the financial crisis.

Therefore, being a small business owner and securing a loan to finance your business is rarely easy. However, there are ways to help improve your chances of getting a business loan.

Clearly explain the plans for the loan

When talking to a lender you must clearly explain the plans of the loan and how it will impact the business. This basically means providing a solid business plan that can explain how the loan will be used in your business.

Keep the plans realistic and watertight – pay close attention to projected revenues and accounts, even consider hiring an accountant to give the figures a look over.

Review your credit history

When starting up a new small business, applying for a loan faces much more scrutiny from banks. They will want to know about your personal credit history, so be sure to review this and do whatever you can to make improvements should it be in poor condition.

For those unaware, you can request a credit report to ensure everything is in good order and there are no mistakes or unexpected surprises when reviewed by the lender. If your credit history isnt great, you’ll need to take time to repair it before applying for a business s loan.

Show that you can repay the loan

Every lender wants the borrower to demonstrate their ability to repay the loan, so this should be part of your business plan. You’ll need to make predictions about your revenue and explain current cash flow and clearly show that the business is growing – nobody wants to finance a failing business.

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