A commercial mortgage can help you quickly acquire or develop an income-generating commercial property. However, you may need to meet certain requirements to get this type of financing, including a deposit amount. Here is a look at how much deposit you will need and the benefits of paying a higher deposit.
Is a Commercial Mortgage Deposit Required?
Yes, usually, an upfront deposit is required for a commercial loan. However, you can negotiate with your lender to lower the deposit or increase the loan amount.
Amount of Deposit Required for a Commercial Mortgage
Most lenders require a 20% to 40% deposit to issue a mortgage, but many factors are at play. For example, the type of commercial property you’re purchasing, such as a petrol station or office building, determines the required upfront cost. Your credit history will also play into the deposit.
If your lender assesses that you can’t comfortably manage large monthly payments, they’ll usually offer you a smaller mortgage. In turn, you’ll have to pay a higher deposit for the commercial loan. However, you can negotiate with the lender for a lower deposit amount.
Advantages of Paying a Higher Deposit
Most commercial mortgage lenders require high deposit amounts, meaning that you need to raise a significant sum of money beforehand. However, paying a higher deposit reduces your monthly repayments and interest. For help navigating the complexities of the commercial mortgage process, consider engaging an experienced specialist. An expert can help you make an informed choice and find the best deals on the market, including lower interest rates for commercial mortgages with smaller deposits.
Does a Commercial Mortgage Require Security?
Your commercial mortgage can be secured or unsecured depending on factors like the loan amount. Often, the property you’re buying is sufficient security for most types of real estate financing. There are different forms of security for commercial mortgages. Some lenders will even ask you to secure the full mortgage amount. In that case, your security options may include equity in other properties you own or a charge over shares, or an insurance plan. You may also use other business assets as collateral for the commercial property loan.
How to Raise Funds for a Commercial Mortgage Deposit
When you’re asked to pay a high deposit amount for your commercial mortgage, you may sometimes be unable to draw from your company’s cash reserves. Therefore, you’ll have to find an alternative source of financing for it. For example, if a lender offers 75% of the property’s loan to value (LTV), you’ll need to finance the remainder of the deposit from a different source.
Some viable sources to raise the amount required upfront include:
- Working capital
- Development funds
- Alternative finance, such as a bridging loan
A bridging loan can be an option for you if you’re developing or expanding a commercial property. With the money, you can quickly begin construction work when you’re unable to get a mortgage right away.
What Are the Typical Uses of a Commercial Mortgage?
Commercial mortgages can finance different types of real estate property investments. You can use the loan to purchase a commercial building or land that will be utilized for business purposes.
To learn more about security requirements for a commercial mortgage, contact our experts at Fidelity Mortgage Lenders today. We offer some of the most flexible commercial loan terms and rates on the market.