Commercial Loans FAQs

What are Commercial Loans?

Commercial Loans, also known as business loans or commercial mortgages, are a type of conditional funding that is available to businesses. This loan can be taken out by a sole trader, or a limited company. They are usually used to fund operational costs, expansion, property purchase or other business purposes. 

Unlike any other types of loans, commercial lending can be secured or unsecured meaning you may not always need collateral. 

What is an example of a Commercial Loan?

Commercial loans are loans for businesses, as opposed to an individual consumer taking out a loan for a home or a car. Therefore, commercial loans can be used to kickstart your business. An example of that would be borrowing money to help you buy a shop or a restaurant, along with the building. 

Are Commercial Loans the same as business loans?

“Commercial” is essentially another word for “business”. While the term “commercial lending” typically applies to small businesses borrowing money, it’s also used by lenders to describe large loans made to larger companies. Small business loans are usually for borrowing smaller amounts.

What are the benefits of a Commercial Loan?

First of all, commercial loans are a fantastic option for businesses needing to borrow money fast. Whether it’s to kickstart your business or develop and grow, it’s always a good funding source. You may also make use of a commercial property loan, which can be used to open up in a new location and help grow your business.

Since commercial funding is for businesses, you may be able to raise a lot more money than you usually would by borrowing as an individual. To help you borrow more, you may be able to use the assets your business owns as collateral. 

How long is a Commercial Loan?

An average term length for a commercial loan is around 15 years, however it varies. Some repayment plans can have 3 year terms, while others may offer up to 25.

What is the interest rate for Commercial Loans?

Most rates are quoted as a margin over base rate. This mean that a rate of base rate plus 3% would be a total of 4% assuming the base rate is 1%. Loans are also available on a fixed rate basis and are normally quoted as an all in rate. This ignores the base rate fluctuations.

Rates available vary massively by lender, product type and the risk attached to the lending. The rates below are a typical range. however, you should contact an expert to see what is available for your circumstances.

• Traditional Banks – 2% to 13%
• Online shorter term Lenders – 7% to 100%
• Invoice Financing – 13% to 60%

Keep in mind that there may also be additional fees such as arrangement fees, lender fees or early repayment penalties.

What is a Commercial Mortgage?

A commercial mortgage is sometimes also known as a business mortgage. It is intended for business owners to help buy commercial property, or raise capital secured on commercial property. It’s a loan that is secured on the business property/land itself, rather than your main residence. Commercial mortgages are basically a way for companies to borrow more; typically, over £25,000. 

Are Commercial Mortgages more expensive?

The answer is yes, commercial mortgages are more expensive than residential ones. This is because commercial lending is much riskier for the lender. The rates they offer are dependant on aspects such as:

• The LTV you are borrowing at
• Your business’ credit history
• The trading experience of you and your business
• The type of asset offered as security
• Your business’ profits and assets

What is the minimum credit score for Commercial Loans?

Ideally, most lenders will prefer to lend to businesses with a good credit profile. They do that, because it makes you look more trustworthy, similar to when lending to an individual. However they ten not to look at a credit score in most cases. Instead they will look at the raw data which makes up your score and see how well you have maintained individual items of personal nd business finance.

Obviously, this does vary depending on your circumstances. Sometimes, collateral may be needed to give the lender security, but this isn’t always the case. Beware of misleading bad credit commercial loans.

What deposit do you need for a Commercial Mortgage?

Usually, you might be expected to put down a deposit of between 25% and 40% of the purchase price for a commercial mortgage. There are two types of a commercial mortgage:

• Owner occupier mortgage – if you are planning on operating your business from the property you are buying 
• Commercial investment mortgage – if you are planning on letting out the property to someone else.

Can I use commercial loans to pay off personal debt?

In most cases no. Commercial loans are intended to be used for business purposes only. These could include:

• Travel costs, petrol or car hire
• Accommodation and food costs when travelling for business purposes
• Advertising and marketing
• Staff uniform
• Staff costs
• Stationary costs
• Business insurance 

However, if your business owes you money personally, a commercial loan could be used to fund the business repaying it’s debt. A common example is where you might have funded the business during start up. Once the business pays you the money it owes you, you could use this personally as you wish; including paying personal debts

Basically, a business loan can be used for anything to do with the business and should not be used for personal use. If you do need a loan to get rid of debt, think about a debt consolidation loan. 

How much stamp duty do you pay on commercial property in the UK?

You do not pay stamp duty on commercial property under £150,000. 

The rates in England go as follows:

• Up to £150,000 – 0%
• £150,001 – £250,000 – 2%
• £250,001+ – 5%

What is non-residential property?

A non-residential property is a property that someone cannot live in. These include:

• Commercial property (shops, restaurants, offices)
• Property that is not suitable to live in
• Forests
• Factories
• 6 or more residential properties, that are bought in a single purchase
• Any land or property that is not part of a dwelling’s garden or grounds

Talk to a Promise Money adviser for more details

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