Can I Use a Business Loan to Buy a Commercial Property UK?
Mark Grant
Head of Asset and Property Finance · Aug 11, 2024 · 7 min read
A standard business loan is not the right product for buying commercial property. Property purchases require specific finance products, primarily a commercial mortgage or a bridging loan, depending on the timeline and purpose. Here is what each product does and when each one is appropriate.
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Commercial mortgages: the standard route
A commercial mortgage is the standard finance product for purchasing commercial property. Loan terms run from 3 to 25 years. LTVs are typically up to 65% to 75% of the property's value. Interest rates range from 4% to 12% per annum depending on the property type, LTV, borrower profile, and lender. The application process includes a valuation and legal charge registration, typically taking 6 to 12 weeks.
Commercial mortgages are available for owner-occupied premises (where your business operates) and investment properties (bought to let to other businesses). The assessment criteria differ: owner-occupied mortgages focus on the borrower's business performance; investment property mortgages focus primarily on the rental income relative to the loan repayments.
Bridging loans: speed over cost
A commercial bridging loan provides short-term funding (typically 3 to 24 months) to complete a property purchase quickly, usually while longer-term finance is being arranged or a current property is being sold. Bridging loans can complete in as little as 2 weeks versus 6 to 12 weeks for a commercial mortgage.
Bridging is more expensive than a commercial mortgage (typically 0.5% to 1.5% per month), but it solves problems that a mortgage cannot: short-notice auction purchases, acquisitions where the property needs refurbishment before it can be mortgaged, or situations where speed is commercially critical. A clear exit strategy (how you will repay the bridge) is essential; lenders will not approve a bridge without one.
"Buying commercial property with an unsecured business loan is almost never the right answer. The product designed for the purpose is a commercial mortgage, and the cost difference compared to an unsecured loan is significant."
- Mark Grant, Head of Asset and Property Finance
Frequently Asked Questions
Can I get a commercial mortgage with bad credit?
Yes, with restrictions. Specialist commercial mortgage lenders will consider applications with adverse credit if there is significant equity in the property (lower LTV) and current trading is strong. Rates will be higher than for clean credit applications.
The bottom line
Spark Finance arranges commercial mortgages and bridging loans through specialist property finance lenders. Start at apply.sparkfinance.co.uk.
Check your eligibilityAbout the author
Mark Grant
Head of Asset and Property Finance
Mark heads asset and property finance at Spark Finance, arranging hire purchase, asset refinance, bridging, and commercial mortgages for UK businesses and property investors. He works across construction, manufacturing, and property sectors to structure funding secured against assets and property.
