What Affects The Interest Rate Charged On A Commercial Mortgage?
If you are looking to raise finance on behalf of your business and are able to provide security over the commercial premises that you are looking to buy then one of the ways of doing this is with a commercial mortgage. You will no doubt be looking for the best deal possible that usually includes arranging the commercial borrowing at the lowest rate you can find and pay low fees.
So, what affects the fixed or variable interest rates that the likes of banks, building societies and other lenders charge for commercial mortgages?
Well, the key factor that affects what lenders will charge you, having taken into account what the likes of the Bank of England Base Rate is in the UK, is the perceived risk that the lending proposition presents to them.
So, if you are just starting up in business and require a commercial mortgage then you are likely to be charged more than a long-established business that has an excellent track record of paying off any previous borrowings. After all, with a brand new business venture, the lender can only see profit projections and a cash flow forecast whereas with a business that has been established for many years it will be able to look at say 3 years audited accounts, up-to-date management accounts as well as projections. The lender can also look at the established business’s bank current account operation.
The security margin can impact on the interest rate to be charged. If the Loan to Valuation (LTV) is only 40% compared to a LTV of 80% then the risk of loss to the lender is lower with the former %. Therefore, it is quite likely that the interest rate will be lower.
The amount that you wish to borrow may impact on the interest rate. For instance, if you wish to borrow say £100,000 you may pay a higher interest rate than if you wanted to borrow £5 million.
If you are considering a commercial mortgage you may wish to get in touch with ourselves as we can help you find a competitive financial package.