Frettens’ Patsy Whitford answers your questions on Commercial Property Loans and how they work

By Patsy Whitford [email protected]

Published: March 5, 2024 | Updated: 5th March 2024

Purchasing a business premises is a step that many companies take as they continue to grow but, as you’re probably aware, commercial property can be expensive.

Luckily, there are a host of financing options available including mortgages, loans and more.

In this month’s Legal Q&A, Patsy Whitford, Commercial Property Expert at Frettens, answers your question on Commercial Property Loans and breaks down your options.

What is a commercial mortgage?

The most common type of commercial property loan is a mortgage.

Commercial mortgages work similarly to residential ones, upon providing a deposit (a down payment on the property) you can get up to a 90% loan for the purchase of the property, which will need to be repaid.

Commercial mortgages often attract a higher rate of interest than residential ones.

Although commercial mortgages are so common, it may not suit your needs. A mortgage is a long-term commitment and involves making regular payments every month. Many people opt for more short-term loan options.

You will also often be asked to provide personal guarantees from individual directors and a debenture from the company.

This article predominantly focuses on the other types of loans for purchasing commercial property. You can read our dedicated article on commercial mortgages here.

What is a bridging loan and how does it work?

A bridging loan is a short-term loan that, hence the name, helps you bridge the gap between the sale of one asset and the purchase of another or a temporary shortfall in available funds.

For example, you could take out a loan of this type to help raise funds for a new commercial property while you wait for the old premises to sell.

Bridging loans can be open, meaning there won’t be a set date for you to repay it, or closed which means there will be.

Related: Getting your commercial property ready for sale – a checklist

What is commercial asset-based lending?

Asset finance, or asset-based loans, are loans secured on assets owned by the business. This type of loan can also be used to finance the purchase of a commercial property.

Assets used as collateral could include work-in process, raw materials, property, land, equipment, office furniture and more. Similarly to bridging loans, if a loaned sum is not repaid then the asset(s) will be at risk.

Lenders will generally favour businesses with assets that are easy to identify and calculate the market value of.

Which loan is best for commercial property?

Which loan is best for you depends on your and your business’ circumstances!

In the full article, Patsy outlines each financing option featured in this Q&A in more detail and discusses the pros and cons of each.

To gain a better understanding of which option is best for you, you can read the full article here.

Specialist Commercial Property Solicitors

If after reading this article you would like to discuss your options, have any questions or would like to instruct a solicitor to assist please don’t hesitate to contact Frettens specialist Commercial Property Team.

We would be happy to discuss your options with you and help you through the purchase and or sale process.

You can get in touch for a free initial chat on 01202 499255 or by following this link.

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