Commercial Mortgage Deposit

When purchasing a commercial property using a commercial mortgage, a deposit will be required.

The minimum deposit is the decided based on the loan to value offered by your lender.

In this guide we’ll give you a breakdown of how much deposit you will need, how commercial mortgages work, as well as answering some key related questions.

How much deposit will I need for a commercial mortgage?

You will need to put down a deposit between 20-40% depending on your circumstances.

The deposit is decided based on the difference between the maximum loan to value (LTV) offered by your lender and the purchase price or value of the property.

If you have identified a commercial property priced at £250,000, the deposit you need would be:

LTV Ratio	Deposit Needed	Mortgage Sum
25%	£62,500	£187,500
30%	£75,000	£175,000
35%	£87,500	£165,000
40%	£100,000	£150,000

A commercial mortgage broker will help you to find the best deal. Many will charge a fee for their services, often around 1-1.5% of the loan amount – although we don’t charge broker fees for loans over £100,000.

This will potentially save your business a great deal of money over the entire term of your mortgage.

Does the type of commercial mortgage impact the deposit required?

Yes, an owner-occupied commercial mortgage may allow you to borrow more than a commercial investment mortgage or semi-commercial mortgage.

Start-up commercial mortgages tend to require the biggest deposits due to the uncertain nature of a start-up business.

That said, the only way to get an accurate figure is to get in touch and we’ll get you a quote within hours. In most cases, we can give you a strong indication of your maximum borrowing power on the initial call.

What factors impact the deposit required?

There are several factors that impact the level of deposit required. They are:

• Application type – Whether you require a property to run your business from or are buying it as an investment to rent out. Generally, owner occupied loans qualify for higher LTVs than investment purchases.
• Property type – Some property types come with different lending criteria. High risk industries, like pub mortgages may qualify for a lower LTV than robust industries such as GP surgeries.
• Affordability position – If your affordability and profitability positions are very high, you’re likely to qualify for a higher LTV and therefore require a lower deposit than less profitable applicants.
• Credit history – Borrowers with a clear credit history and high credit score will require a lower deposit than those with an adverse credit history. That said, these borrowers will still qualify for a bad credit commercial mortgage.
• Industry experience – If you’re new to your industry, or are a first time commercial property investor, you are likely to require a larger deposit than your more experienced counterparts. This is to reduce the risk to the lender in the event of failure due to your lack of a track record.

Can I get a commercial mortgage without paying a deposit?

Yes, 100% loan-to-value commercial mortgages exist, but they are extremely specialist and rarely offered. You may be able to get a 100% commercial mortgage if your business operates in the medical industry, or if you can offer significant additional security over another property.

Speak to a commercial mortgage broker if this option interests you, but ensure you are fully aware of the financial implications of such an arrangement.

Higher LTV loans can be costly and leave little room for error.

Does the amount of deposit needed differ depending on the type of commercial mortgage?

Yes, the business that you are looking to take out will influence the deposit you are expected to pay. Lenders always look to minimise risk to their investment as much as possible.

Business ventures considered lower risk will be granted a mortgage with a lower deposit, while higher-risk endeavours will demand a larger deposit to ensure a smaller loan.

Examples of a low-risk business could include:

• A greengrocer, butcher, bookstore, or other commercial ventures considered essential. This kind of business will likely have low overheads and high customer turnover – assuming they are not competing directly with a supermarket three doors along!
• A beauty salon or hairdressing parlour. These kinds of businesses will always be needed, and will always attract customers – again, provided competition in any area is not too fierce

Examples of a high-risk business could include:

• Opening a pub, restaurant, or B&B. These undertakings have high overheads and struggle to turn a profit in the current economic climate. As such, specialist hotel mortgages are required.
• A marketing agency or similar business that will take several years to become profitable as you build your reputation. Can you keep up with your mortgage payments in those tricky early days?
• Shopfronts that specialise in luxury consumer goods or big-ticket items. These business models rely heavily on a small target audience spending big to provide profits. If your core audience stops propping up your business model, the gap will be tricky to plug

If you are looking for a commercial mortgage on a high-risk business, spend plenty of time on your business plan – ideally seeking help from a professional – so you can calm any fears a lender may have about your ability to keep up with repayments. this option interests you, but ensure you are fully aware of the financial implications of such an arrangement.

Higher LTV loans can be costly and leave little room for error.

Does the amount of the deposit on a commercial mortgage affect my interest rate?

Yes, your commercial mortgage rates will be impacted by the amount of deposit you have. A larger deposit will reduce your interest rate in most cases.

If you can afford to pay a larger deposit, you will pay less on your commercial mortgage.

How can I finance my deposit?

If you cannot find a commercial mortgage with an interest rate that suits you, or you’re unable to raise the funds necessary for a deposit on a property, you could consider a business loan.

Unsecured business loans can often be used to fund a deposit on a commercial property purchase for established businesses.

Business loans could be unsecured, which provides you with a little more security but will cap your borrowing potential, or they could be secured against a personal asset – usually your home.

Other sources of funding that could be used to raise a deposit include invoice finance, invoice factoring and invoice discounting. These products work well for companies that accept payment on delayed terms.