Buying a business premises/applying for commercial mortgage

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Buying a business premises/applying for commercial mortgage

Postby topcat » Tue Jul 26, 2016 10:51 am

Hello all

Does anyone know about commercial mortgages. I'm tentatively looking at a shop that has come up for sale but I've absolutely no clue if I could meet the criteria for a lender. I've a friendly local mortgage advisor (currently on holiday) but I'm wondering if any of you have recent experience of purchasing a shop.

I have enough money for a deposit of 10% or slightly more, plus a set of kind parents willing to use one of their houses as added security, as well as two current landlords who can attest to my timely rent payments. I have a feeling that I may need a much higher deposit and the fact that I've only been in business for two and a half years may count against me...
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Re: Buying a business premises/applying for commercial mortg

Postby prospero » Tue Jul 26, 2016 11:41 am

Not as easy nowadays as it was maybe 20 years ago. I applied to my bank when I was buying my present premises.
They were falling over themselves to lend to me. I had been in business about ten years though. Renting a
shop at the time. Nowadays they tend not to be so lavish with the cash.

Don't forget all the extras involved. Valuations/surveys/solicitors fees/stamp duty/relocation costs

The lender will probably insist on buildings insurance, but that can maybe be tacked onto your existing commercial insurance.

Commercial or domestic, it all comes down to bricks and mortar. If they think it's a viable proposition then all's well.
But if you are self-employed you don't have a regular income as such and that can be a stumbling block. They will probably
go though your accounts with a fine tooth comb. They need to be sure that you can afford the repayments. That's fair
enough I suppose. Remember they have the upper hand if things go pear-shaped.
They can't lose and you will be down the river. :?

I don't know the ins and outs of your personal situation so hard to make comment. But I would be inclined to keep building
your business a little while longer before landing yourself with a mortgage. Although you have to weigh up what you are
presently paying in rent against the mortgage payments.

If you do decide to go for it, look at accident/illness insurance.
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Re: Buying a business premises/applying for commercial mortg

Postby Jamesnkr » Tue Jul 26, 2016 4:46 pm

I am not a banker, but I suspect you'll likely be looking at needing 25-40% of the value of the property - plus SDLT and fees. You parents will likely have to mortgage their house to get the cash out; in this day and age "security" over another property doesn't please bankers the way actual cash will. And being a business owner occupier probably won't please them the way a property investor letting to a third party would.

I suggest a chat with a good mortgage broker. They will know banks that you won't be able to guess at.

At least your parents' residential mortgage will be cheap in the current market. Make sure you talk to your accountant too, as obtaining a tax deduction on interest payments made by your parents may not be that simple. You may find incorporating your business as a company the best way forward - and then your parents can obtain a tax deduction on the interest costs. If you choose to pay them interest then it's neutral for them.
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Re: Buying a business premises/applying for commercial mortg

Postby Vix » Fri Jul 29, 2016 3:36 pm

My understanding of it is that a commericial mortgage is not a 'mortgage' in the true sense, it's a business loan and works slightly differently to a normal mortgage. Usually the lender will want between a 20 - 40% deposit and at least 3 years worth of accounts. Also the interest rate on this type of loan will be at a much higher rate than a standard mortgage. Then there's the professional fees which will be much higher, as valuers etc generally charge a much higher rate due to the fact that you're a business rather than a general home buyer, where they tend to have 'packaged deals' for surveys etc. You will also have to insure the building and it's usual for the loan company to try to get you to use their insurers at what often works out to be a higher premium - you should be able to shop around for a better rate though as it is usually ok to get your own cover sorted and that also goes for life insurance which is something else they usually want you to have. After this you need to take any tax implications into account (especially if your parents are involved as a guarantor or as a gifted deposit) and so would need to make sure your accountant gave you the best advice to cover all eventualities. If at a later date you decided to sell this property you'd also be subject to capital gains tax - so you need to consider this possibility too even before buying.

The lending criteria for this type of loan has always been strict (even with a good credit history) and after the crash of 2008, I suspect it's only got harder despite the government saying that banks need to be lending more to businesses especially small ones. Things are changing all the time though, so what may have been the norm say 10 years ago, may not be true now. I always think though it's better to go in with your eyes wide open and do as much homework as you can before committing yourself to what could turn out to be one of the largest purchases you'll ever make as a business.
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Re: Buying a business premises/applying for commercial mortg

Postby Jamesnkr » Fri Jul 29, 2016 4:01 pm

Vix wrote:If at a later date you decided to sell this property you'd also be subject to capital gains tax - so you need to consider this possibility too even before buying.


If you're buying new premises with the cash from the old premises (for an acquisition up to one year before or three years after the sale) then you can roll over the gain into the new premises - i.e. you only pay the CGT when you sell the subsequent asset.

Moreover, if you don't reinvest the cash then the CGT on business assets held personally is 20%, and you'll likely be able to obtain entrepreneur's relief which reduces the tax rate to 10%.

Again, make sure your accountant knows you're going to buy the building and has advised you accordingly; some of these reliefs require you to be correctly structured first. It's also a very good time to contemplate whether you want to operate the business as a company or as a sole trader.
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Re: Buying a business premises/applying for commercial mortg

Postby topcat » Fri Jul 29, 2016 9:12 pm

Thanks for the input and sound advice. I'm not expecting to be able to get the funds, I will follow up any and all possible sources. Though perhaps not one man who I'm told operates a local business with a sideline on loans so long as you're happy to have your kids or legs as security!

The property I want to buy should be available for approx 80k, not a massive figure, but still more than I think it's likely I'll be able to arrange.
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Re: Buying a business premises/applying for commercial mortg

Postby Skinnymarinky » Sat Jul 30, 2016 4:29 pm

Look into SIPPs :D
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