100% Mortgage Loans for Commercial Property Investors

A typical maximum loan to value for a mortgage on business premises is 75% subject to all the usual lending criteria, credit checks etc, but sometimes that's not enough to secure the investment. Is it possible to exceed the normal lending requirements? Yes, is the answer, it can be done but only in limited circumstances, so let us cover the 4 main possibilities.

For more specific information about Commercial Mortgage Loans read our Commercial Mortgages page.

The Standard 100% Mortgage Option Method

The most popular way to stretch a commercial mortgage over and above normal limits is to use the additional security method. Simply put, the purchaser must have access to other property with sufficient equity to offer a potential lender additional security to cover the mortgage amount required. In addition the loaned amount will still need to meet standard criteria i.e. rent or income will need to cover interest payments.

The Quality Covenant Method

This method of securing that elusive 100% commercial mortgage relies on the strength of the covenant between the property owner and the tenant and quality of cash flow. In brief, this means that a strong contract is in place or will be with the tenant and that the term of that contract will be long enough to lower the mortgage loan to value over time and bring it back to within normal parameters. The tenant should also be of sufficient quality to be relied upon to make payments for the whole of the contracted term. One example of a quality tenant would be a public body, the NHS for instance.

The Tenant Purchase Method

If you are a long-standing tenant in a commercial property the opportunity may arise to buy the freehold at a discount (the lenders valuer must confirm this). In this situation a commercial mortgage provider may agree to provide a 100% mortgage if your business can show interest can be serviced.

The Value Added Method

The final option to be covered in this article is perhaps the most difficult as rents for commercial premises tend to be determined by location and requires extra effort on the prospective investors part, but it is not impossible!

This option works where a property has the potential to add value and command a premium rent or tenant, it is not suitable for semi commercial premises. The kind of value-add we are looking at is most likely in the area of major renovation works, site re-configuration, or an extension to a stand-alone site. To pursue this method and achieve this goal, market research should take place to ascertain whether the uplift in value to the property is worthwhile in relation to potential rent. If the result is positive then a standard property development loan could be used to carry out the building works. Note: temporary cash input may be required but not necessarily, it will depend on the specific details of the deal! The exit for the development loan lender would be via a long term commercial mortgage.

As you can see, the route to a 100% commercial mortgage loan is difficult, but there are opportunities out there just waiting for an investor with the right vision!

Update: If you are considering purchasing a business that you intend to operate yourself and need a loan above normal criteria, then you may be interested in our 100% Freehold and Leasehold Business Purchase Finance page.

Back To Articles Page.