Commercial mortgage requirements in the UK: What businesses need to know

When youʼre running a business, something that will come up periodically is the question of premises. Whether youʼve outgrown the small rented space thatʼs costing you a fortune each month, or youʼve spotted the perfect building that could transform your operations, commercial mortgages often hold the key to growth.

Owning your own commercial property is a boon in more ways than one; youʼre securing a base for your business operations while building up a valuable asset that could boost your companyʼs value significantly over time. Rather than watching thousands of pounds disappear into a landlordʼs pocket each month, mortgage payments actually work for you, building equity that becomes part of your businessʼs financial foundation.

Acquiring a property also gives you some control and stability in an uncertain world. No more worrying about rent increases that could squeeze your margins, or landlords who might decide they want their property back just when your business is hitting its stride. 

Commercial mortgages are the most common way of acquiring a home for your business, but thereʼs a range of alternative commercial property finance to help owners capitalise on opportunities where they might need to act quickly. In this article, weʼll cover how to get a commercial mortgage, as well as some other finance options for more specific situations, such as bridging loans.

Key points:

• If your business is in good shape, a commercial mortgage can solidify your position and add further value

• Auction finance offers short-term loans to secure competitively priced properties. Development finance works by releasing funds in stages as work progresses. Bridging loans offers faster, short-term funding. Asset finance lets you use business assets as security on a loan.

• Funding Options by Tide can help when optimisation of working capital isnʼt enough, offering access to business finance up to £20 million

Deposit and eligibility criteria

When it comes to commercial mortgages, youʼll need a substantially larger deposit than you would for a residential property. Most lenders expect between 20% and 40% of the propertyʼs value upfront, with 25-30% being typical for most applications. While this represents a significant investment, remember that this deposit becomes instant equity and a business asset.

Your eligibility hinges on demonstrating financial stability and repayment capability. Lenders want to see proof that your business is profitable and can service the debt alongside any other regular costs.

Key commercial mortgage requirements include:

• At least two years of audited accounts (some lenders accept 12 months for strong applications)

• Consistent profitability and healthy cash flow

• Personal guarantees from directors or business owners

• Good credit history for both the business and key individuals

• Evidence the business can comfortably afford repayments

Deposit factors that affect your rate:

• Property type: Standard offices and retail units typically qualify for lower deposits

• Trading history: Established businesses often secure better terms

• Financial strength: Strong profits and cash flow can reduce deposit requirements

The good news is that even if your credit history isnʼt perfect, many lenders will consider the broader context of your financial situation, especially if you can demonstrate how past difficulties have been resolved.

Documents and credit history

Getting your documentation together is crucial for a smooth commercial mortgage application. Lenders need to build a comprehensive picture of your businessʼs financial health, so being organised with your paperwork can significantly speed up the process and improve your chances of approval.

The application process will involve both your business and personal finances being looked at, as directors typically provide personal guarantees. While this might seem intrusive, itʼs standard practice that helps lenders offer competitive rates to SMEs.

Essential business documents youʼll need:

• Last 2-3 years of audited accounts and management accounts

• Bank statements for the past 6 months (all business accounts)

• Business plan outlining future projections and how the property fits your strategy

• VAT returns and corporation tax computations

• Details of existing business loans and credit facilities

• Property survey and valuation (arranged through your lender or independently)

Personal financial requirements:

• Personal bank statements (typically 3-6 months)

• Proof of income for all directors providing guarantees

• Details of personal assets, liabilities, and existing mortgages

• Personal credit reports (you can check these yourself beforehand via Experian, Equifax, or TransUnion)

Your business credit score matters when applying for a commercial mortgage – see how you could improve yours with Tide’s Credit Score Insights. As well as this, lenders also examine the credit histories of key individuals. A few late payments or minor issues wonʼt necessarily derail your application, especially if you can explain the circumstances. However, serious defaults, CCJs, or bankruptcy will require careful discussion with specialist lenders who understand more complex financial situations. Fortunately, there are many lenders who are more flexible with credit requirements if your business fundamentals are strong.

Auction finance and development property loans

Property auctions can offer fantastic opportunities for businesses looking to secure premises at competitive prices, but they come with a unique challenge: you typically need to complete the purchase within 28 days of the auction. Standard commercial mortgages simply canʼt move that quickly, which is why specialist auction finance makes up part of the range of commercial property finance.

Auction finance works differently from traditional mortgages. These short-term loans are designed to help you secure the property quickly, giving you time to arrange longer-term financing afterwards. Most auction finance providers can complete within 10-14 days, though youʼll pay higher interest rates for this speed and flexibility.

Key features of auction finance:

• Loan-to-value ratios typically 65-75% (requiring larger deposits than standard mortgages)

• Terms usually 6-12 months, designed as bridging finance

• Higher interest rates reflecting the speed and specialist nature of the service

• Can often be arranged on properties that need refurbishment or have planning issues

Funding to develop a property also requires specialist lending due to their inherent risks and phased funding requirements. Whether youʼre converting existing premises or building from scratch, development finance releases funds in stages as work progresses, rather than as a lump sum upfront.

Development finance typically covers:

• Purchase of land or existing buildings for conversion

• Construction costs released in stages based on surveyor inspections

• Professional fees for architects, planners, and project managers

• Often higher loan-to-value ratios once planning permission is secured

The key with both auction and development finance is working with lenders who understand these specialist markets and can move at the pace your project demands.

Alternatives to commercial mortgages: bridging and asset finance

While commercial mortgages account for the majority of property purchases, theyʼre not always right for every situation. Sometimes you need faster access to funds, or your circumstances donʼt align with traditional lending criteria. Thatʼs where alternative financing options come into play, each designed to solve specific business challenges.

Bridging finance can be useful when timing is critical. Perhaps youʼve found the perfect premises but need to move quickly to secure the deal, or youʼre waiting for the sale of another property to complete. Bridging loans can typically be arranged within weeks rather than months, though youʼll pay higher interest rates for this speed. These loans are designed as short-term solutions, usually lasting 6-24 months, giving you breathing space to arrange longer-term funding or complete property sales.

Asset finance opens up different possibilities altogether. Instead of borrowing against property, youʼre using business assets as security. This could include equipment, machinery, vehicles, or even intellectual property like patents or trademarks. Asset finance can be particularly attractive for businesses that donʼt want to tie up large amounts of capital in property deposits, or those operating from leased premises who still need substantial funding for growth.

The flexibility of asset finance means it can work alongside other property finance. Many businesses use it to fund the equipment and fit-out costs for new premises while using a commercial mortgage for the property purchase itself. This approach can preserve cash flow and spread the financial commitment across different types of assets.

Each alternative has its place depending on your specific circumstances, timeline, and business strategy. The key is understanding which option aligns best with your immediate needs and longer-term objectives.

Find business finance with Funding Options by Tide

Whether you’re looking for a standard business loan, a short-term business loan, or something a little more specialist, like auction finance for property developers, we’re one of the leading names in business finance in the UK, having helped facilitate over £1 billion in finance to more than 20,000 customers.

Checking if you’re eligible is free, only takes a few minutes, and while a full application would impact your personal or business credit score, checking eligibility won’t. Just submit your details via the link below to find out if you could be eligible to borrow up to £20 million.

Find business finance.

FAQs

How long does it take to secure a commercial mortgage?

Typically 6-12 weeks from application to completion, though this can vary significantly. Simple applications for established businesses with straightforward properties can move faster, while complex cases or specialist properties may take longer. Having all your documentation ready upfront can shave weeks off the process. 

Whatʼs the maximum loan-to-value ratio available?

Most lenders offer up to 75-80% LTV, though this varies by property type and borrower strength. Prime office locations with strong tenants might achieve higher ratios, while specialist properties or newer businesses typically face lower limits.

Do I need a deposit if I already own commercial property?

If youʼre remortgaging existing property, you wonʼt need a cash deposit, but youʼll need sufficient equity in the property. Most lenders require at least 20-25% equity to remain in the property after the new mortgage.

Can I use a commercial mortgage for mixed-use properties?

Yes, many lenders offer mortgages for mixed-use properties, though the residential element typically canʼt exceed 40% of the total floor space. These applications often require specialist underwriting due to the dual-use nature.

What happens if I canʼt make the mortgage payments?

Always speak to your lender if you think you might have issues making your regular repayments. Your lender will work with you to find solutions, such as payment holidays or restructuring the loan. As a last resort, they may repossess and sell the property to recover their funds. Remember, the personal guarantees required by commercial mortgages mean directors remain liable for any shortfall.

Are there any restrictions on how I use the property?

Your mortgage terms will typically specify what you can use the building for, which should correspond with the propertyʼs planning permission. Changing use without the permission of your lender could breach your mortgage terms, so always discuss significant changes with them first.

Can I get a commercial mortgage for a property Iʼm planning to rent out?

Yes, buy-to-let commercial mortgages are available for investment properties. These typically require higher deposits (25-40%) and are assessed on the propertyʼs rental income potential rather than your business turnover.

Whatʼs the difference between a commercial mortgage and business loan for property?

A commercial mortgage uses the property as security and typically offers lower rates and longer terms (up to 25 years). A business loan might be unsecured or secured against other assets, often with shorter terms but potentially faster approval times.

Do I need professional valuations and surveys?

Yes, lenders require professional valuations to determine the propertyʼs worth, and most also insist on building surveys to identify any structural issues. These costs (typically £500-£2,000) are usually paid by the borrower but are essential for protecting both parties.

Can I move my commercial mortgage if I move premises?

Some lenders allow whatʼs known as mortgage ʼportabilityʼ, letting you transfer your existing mortgage to a new property. However, this depends on the new property meeting the lenderʼs criteria and may require additional borrowing if the new property costs more.

What are typical rates for bridging finance?

Bridging finance rates typically range from 0.5% to 2% per month, which translates to roughly 6-24% annually. The exact rate depends on factors like loan-to-value ratio, property type, exit strategy, and how quickly you need the funds. While higher than traditional mortgages, you might think the speed and flexibility justifies the cost.

Please note that the information above is not intended to be financial advice. You should seek independent financial advice before making any decisions about your financial future.

Itʼs important to remember that all loans and credit agreements come with risks. These risks include non-payment and late-payment of the agreed repayment plan, which could affect your business credit score and impact your ability to find future funding. Always read the terms and conditions of every loan or credit agreement before you proceed. Contact us for support if you ever face difficulties making your repayments.

Funding Options, now part of Tide, helps UK firms access business finance, working directly with businesses and their trusted advisors. Funding Options are a credit broker and do not provide loans directly. All finance and quotes are subject to status and income. Applicants must be aged 18 and over and terms and conditions apply. Guarantees and Indemnities may be required. Funding Options can introduce applicants to a number of providers based on the applicantsʼ circumstances and creditworthiness. Funding Options will receive a commission or finderʼs fee for effecting such finance introductions.