Just as with a residential mortgage, it's essential to assess your commercial borrowing and determine whether a remortgage could save you money!
The difficulty for businesses with an existing commercial mortgage is that it isn't always clear what rates you'd qualify for - and whether you could end up with higher repayments by switching to a different lender.
Here the Revolution Brokers team runs through the key elements to refinancing a commercial mortgage and some of the benefits available.
Reasons to Refinance a Commercial Mortgage
There are many reasons you might be looking at refinancing - here are some of the most common scenarios:
You want a better deal. Older commercial mortgages may no longer be competitive, or there could be new mortgage deals available that will reduce your business outgoings.
- To release equity. Companies needing a capital injection can refinance a commercial mortgage to release equity and invest the funds back into the business.
- Switching mortgage types. If you have an owner-occupied commercial mortgage and want to rent out the property or move premises, you will need to refinance onto a commercial investment mortgage.
- Increased property values. Many premises appreciate over time, so if your trading unit is worth more, you might be able to borrow more or reduce your mortgage rates by refinancing.
Borrowing Limits on a Commercial Remortgage
Lenders will always want to look at affordability on a commercial mortgage loan.
While there isn't a static calculation they'll use, a provider will consider your profits and trading history to decide.
Most semi commercial mortgage lenders will assess your net profit before interest, tax and depreciation, and compare this to the monthly repayments required.
Some providers also accept additional income streams, so it's well worth seeking independent advice from Revolution Brokers if you're worried about passing affordability checks on a commercial mortgage refinancing project.
Commercial Mortgage Refinancing Rates
Mortgage rates are critical for commercial borrowing. You need to know you're not paying more than you have to - and diluting your profitability.
Lenders will offer varying interest rates depending on the nature of your application. Still, there are several ways you can improve your chances of securing the most competitive rates on the commercial mortgage market:
- Applying for a lower Loan to Value ratio. Higher deposits with lower LTV are less risky for a lender. You'll usually need at least a 25% deposit as a minimum.
- Demonstrating good credit history. Ensuring your credit file is accurate and repaying any debts will help strengthen your commercial mortgage application.
- Providing clear trading history records. The longer you have been trading, the more stable the company and the lower your interest rates are likely to be.
There are many other considerations. Commercial mortgage lenders will ask about the type of business you have, and if you have a strong track record, you'll also lower the offered interest rates.
Applying for a Commercial Remortgage
It's essential to seek support from an experienced commercial mortgage broker if you have any concerns about meeting eligibility requirements.
Lenders will ask for several pieces of information as part of the application process:
- Credit history details.
- Proof of income and profit.
- Trading history documentation (two years of trading or more is ideal).
- Business plans - a robust strategy can mitigate several risks and make your commercial mortgage request more appealing.
- Loan statements - evidence of other debts showing repayments made and outstanding liabilities.
Commercial mortgage lenders also need to understand the reason for the refinancing application. If you can add context to your request and demonstrate that the loan is affordable, they will likely return a favourable response.
Commercial Business Loan or Mortgage Refinancing?
One of the common reasons to remortgage is that you need to borrow more. Perhaps that's to consolidate debts, expand the business, or invest in new equipment.
There are two primary options: either to take out a business loan or to remortgage your premises and borrow a higher value against your property.
It's impossible to indicate which option is preferable since this depends on the overall costs, equity in the premises, and how much you wish to borrow.
A small business loan might be faster, but likewise, the interest rates will be higher, and you'll usually need to repay the debt in a shorter term than is available through a commercial mortgage.
If you'd like help comparing the available borrowing rates on a commercial mortgage against business loans, please give Revolution a call, and we'll explore the options with you.
Our team has years of expertise supporting businesses of all sizes. We can ensure that your application is steered towards the right lender and products to meet your business aspirations.
Conclusion - We are trying to run through the key elements to refinancing a commercial mortgage and some of the benefits available