When you need a large amount of money to invest in property or equipment for your business, you will probably need to find lenders who offer commercial mortgages.
This may apply to you if you wish to buy retail, office or industrial freehold property for your business operations or as an investment. Alternatively, you may be looking to raise money to finance the development of industrial or retail space. Commercial mortgages can also help you to refinance existing loans on commercial properties to get better rates.
What are commercial mortgage rates?
When you decide to apply for a commercial mortgage, the first step is to make a shortlist of lenders. You can then compare commercial mortgage rates quoted by different lenders to identify your best option. Similar to a residential mortgage, you may be able to borrow up to 80 per cent of the value of the property, depending on your circumstances and application.
If you offer a commercial or residential property as security, you may be able to negotiate a lower variable interest rate. The interest on fixed-rate loans with commercial property as security often depends on how many years you need the loan for.
If you borrow from a private lender or investor, you may have to pay a higher interest rate for a variable rate loan. Some private lenders may be willing to finance up to 85 per cent of the property value.
It’s more common for commercial mortgages to offer variable rate loans. You will often find that the average commercial mortgage interest rates tend to be higher than those charged for home loans.
Most bank or non-bank lenders offer commercial mortgages for terms between three and 25 years. Many lenders may require a higher deposit for commercial mortgages, of 30 per cent, instead of 20 per cent that’s usually acceptable for residential loans. This is because commercial property is sometimes seen as more risky from the lender’s perspective.
It’s worth getting quotes from different lenders, including with different ways of structuring your loan, to find the best commercial mortgage rates for your needs.
What are the requirements to get a commercial mortgage?
When you approach a lender for your commercial mortgage, you will need to show that your business will be able to manage regular repayments. The lender will want to see tax returns and bank statements.
You will also need to have the funds for the deposit, which may be between 20 to 30 per cent of the loan amount. You may also need to offer a residential or commercial property that you own as security for the loan.
Based on the information you submit to the lender, they will assess the risk of lending to you, and this will impact the commercial loan mortgage rates you can get. If you succeed in building confidence in the lender that there is a low risk of lending to you, you should be able to get better business mortgage interest rates.