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Commercial Property Finance FAQs

Here at ACF Direct we are sharing our responses to some of the frequently asked questions we receive on this subject.

What is commercial property finance?

This typically entails a commercial property mortgage.

It is very similar, in concept, to a residential mortgage except that the property concerned is going to be used for commercial purposes. For example, if you fail to keep up repayments on the sum you have borrowed, the lender may have the legal right to seize the property after due legal process.

How much can I borrow?

That will largely depend upon three things:

  • the lender’s assessment of the basic value of the property;
  • their own lending policies;
  • their review of your business position to work out how much they believe you will be able to sensibly repay each month.

This is very similar to the same processes carried out for residential mortgages.

Will there be conditions attached to the mortgage?

Yes – there are always terms and conditions with loans, including commercial property finance mortgages.

Of course, some may be more sensible in your circumstances than others. That’s where we at ACF Direct may be able to help with interpretation and matching your requirements to products.

Is the interest rate always the same?

No – absolutely not!

Providers may have very different pricing, in interest rate terms, for their products. That may reflect many different things including their perception of the risks inherent in advancing the mortgage.

Two providers might see that risk very differently and price accordingly. It’s important to know where the more cost-effective deals are in a given situation.

Why can’t I find a Base Rate commercial mortgage?

The “Base Rate” or “Bank of England Base Rate” is a national financial measure used by the Bank of England and the major banks to define the cost of borrowing and indeed the interest rates paid on deposits.

The Base Rate you see mentioned regularly in the news is an inter-bank mechanism which influences consumer lending rates but doesn’t define them. For example, the Base Rate doesn’t consider the risk involved in a bank lending to a given business.

In a sense, you can consider the Base Rate to be a wholesale rate between the major banks whereas your interest rate will be a commercial property finance retail rate.

Can I take out a mortgage on a commercial property I already own?

Yes, though there are some caveats.

Typically, your property:

  • can’t have existing charges against it (i.e. other mortgages);
  • will need to be professionally valued at a level that is sensible when viewed against the sum you are attempting to borrow against it (this is sometimes referred to as the “loan-to-value” calculation);
  • again, you will need to have some business figures available to indicate that you’ll be able to afford the repayments against the sum borrowed.

Will I need to pass a credit history score assessment?

That will depend upon the nature of your company’s legal status.

If you are a sole trader or partnership, a personal credit history check might be performed. Note that even if you have some credit history issues, they might not stop you from securing a mortgage.

By contrast, if you are an established Limited Company or PLC, it will typically be your business metrics (annual accounts) that are likely to be scrutinised.