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A Guide to Commercial Mortgages During the Covid-19 Pandemic

18th March 2021

The Covid-19 pandemic has no doubt turned life as we know it upside down. For the last 12 months, increasing uncertainty and on/off restrictions have caused turmoil in both our personal and professional lives. And as our fight against Covid-19 continues, staying safe and slowing the spread are priorities for people from all walks of life. 

Whilst recent weeks have brought good news, with infection rates dropping day-by-day and the vaccine rollout success, we are by no means out of the woods yet. The economic damage caused by the pandemic is certain to affect many businesses long after Covid-19 is under control. With lockdown still in place however, now couldn’t be a better time to make those corporate plans that will get your company back on track once again.

Making the right financial choices have never been so important for businesses of all sizes and niches, but could securing a commercial mortgage be the right step forward for you and your company post-lockdown?

As one of the region’s leading property management companies and a specialist commercial estate agency, our experts have been there to support their clients throughout the pandemic. Here we offer our advice on how commercial mortgages work and just how appropriate they are during the Covid-19 pandemic.

What exactly is a commercial mortgage?

Commercial mortgages work in a similar way to residential mortgages. With a commercial mortgage, money is loaned to you to either purchase or refinance a non-residential property. This loan is secured against the property. 

Commercial mortgages – or ‘business mortgages’ as they are often referred to – can be accessed by individuals, sole traders, limited companies, partnerships, limited liability partnerships (LLPs), trusts, and pension schemes. They’re even available to individuals or companies who wish to invest through the purchase and rental of a commercial building. In fact, like many property management companies, we actively assist landlords who have invested in commercial or residential property via a buy-to-let mortgage, which is just one type of commercial mortgage.

Our commercial estate agency also assists businesses who are looking to purchase a property of their own instead of rent.

How can commercial mortgages be used during the pandemic?

Whilst we’ve explored the general purpose of commercial mortgages, this form of finance is being used for a long list of other reasons during the Covid-19 pandemic. 

Money saving is certain to be on every business’ mind right now. Whether you’ve been able to operate during the pandemic or not, getting your finances in order will certainly stand you in good stead for the months ahead. 

A commercial mortgage could unlock a better interest rate, so you can save money on your commercial premises. Many of the business owners our commercial estate agency work with are switching to a lower rate, longer-term or even interest only commercial mortgage product to minimise their monthly outgoings. 

For businesses who have suffered diminished demand or been subject to closure due to lockdown restrictions, commercial mortgages also offer a route to raising finance. This finance can then be utilised to support the business as it counters the effects of the Covid-19 pandemic.

Should I opt for a commercial mortgage or a business loan?

Contrary to popular belief, commercial mortgages are more easily accessible than unsecured business loans. This means that businesses who have been unable to secure finance elsewhere may get the support they need to keep their doors open with a commercial mortgage.

It is however important to acknowledge that whilst business loans benefit from a 5- to 7-day turnaround, the process of obtaining a commercial mortgage can take several weeks. Many property management companies and our commercial estate agency found the average commercial mortgage takes 6 to 8 weeks to complete.

Whilst commercial mortgages often offer a simpler route to securing finance than unsecured business loans, like many things during the pandemic, the commercial mortgage market has been impacted dramatically. Our commercial estate agency has witnessed lenders reducing their loan to value (LTV) offers, enforce stricter lending criteria, and rely on more stringent affordability checks. 

How much can I borrow and what are the key costs of commercial mortgages?

How much you can borrow depends on your eligibility but also your business type. Commercial mortgage lenders offer different LTVs for different business types, with the LTV based on the perceived risk of your business type. 

Take these two similar business types as an example – a dry cleaning business that provides its services to the public will secure a lower loan to value mortgage than a dry cleaning business that serves the commercial market. This is down to the commercial dry cleaning business being much more likely to secure longer term contracts with hospitals and hotels, rather than a dry cleaner that serves the public on an ad-hoc basis.

As our commercial estate agency will explain as you negotiate the commercial mortgage market, it’s not just about how much you can borrow. When obtaining a commercial mortgage, you’ll be liable to pay a number of costs, including fees for lender arrangement, valuation, legal and brokering services.

Whether you’re considering a commercial mortgage to refinance your current business premises, purchase a new base for your company, or add to your investment portfolio, our commercial estate agency can assist. As one of Staffordshire, Cheshire and Shropshire’s leading property management companies, we’re with you for the long haul. 

Contact us today to find out more about our commercial estate agency and property management services.