Commercial Mortgages Explained – A Simple Guide for Business Owners

Thinking about buying a shop, office or warehouse? A commercial mortgage is the loan that lets you turn that plan into reality. It works much like a home mortgage, but the rules, rates and paperwork can feel a lot different. This guide breaks down the basics so you can decide if a commercial loan is right for you and how to get it without the usual headaches.

Types of Commercial Mortgages

There aren’t just one or two options – lenders usually offer a few formats. The most common are:

• Fixed‑rate mortgages – your interest stays the same for the whole term, so payments are predictable.
• Variable‑rate mortgages – the rate can move with the Bank of England base rate, which can lower payments when rates drop but also rise.
• Interest‑only loans – you pay only the interest each month, keeping cash flow high at the start. The principal is repaid later, often with a balloon payment.
• Split‑rate mortgages – a mix of fixed and variable portions, letting you balance stability and flexibility.

Choosing the right type depends on how long you plan to keep the property, your cash flow and how much risk you’re comfortable with.

Steps to Get Approved

Getting a commercial mortgage isn’t magic – you need a clear plan and the right documents. Here’s a quick checklist:

1. Know your credit score. Lenders look at both personal and business credit. A score above 650 usually opens more options.
2. Gather financial statements. Profit‑and‑loss accounts, balance sheets and cash‑flow forecasts show you can meet repayments.
3. Prepare a solid business plan. Explain why the property is needed, projected income and how it fits your growth strategy.
4. Calculate the loan‑to‑value (LTV). Most lenders cap LTV at 70‑80%. The more you can put down, the better the terms.
5. Shop around. Compare rates from high‑street banks, specialist commercial lenders and building societies.
6. Submit the application. Include the property valuation, lease agreements (if it’s a rental) and any personal guarantees required.

After submission, the lender will run a valuation, check your documents and may ask for additional information. Respond quickly to keep the process moving.

One tip most people miss: ask about early‑repayment fees. Some contracts penalise you for paying off the loan before the term ends, which can close a good deal.

Also, keep an eye on the total cost of borrowing, not just the headline rate. Arrangement fees, survey costs and legal fees add up fast and affect your overall budget.

Once approved, you’ll sign a mortgage deed and the lender will release the funds. Most commercial mortgages run for 5 to 25 years, so you’ll have a schedule of monthly payments to fit into your cash‑flow plan.

Finally, remember that a commercial mortgage is a long‑term commitment. Review the loan terms every few years, especially if you have a variable rate. Refinancing can save money if market rates drop.

With the right preparation, a commercial mortgage can be a powerful tool to grow your business, secure a prime location and build equity over time. Take the steps above, stay organized, and you’ll move from dreaming about a new property to actually owning it.