Are second charges possible on commercial property? The short answer is Yes.
Accelerated Finance guides you through the pros and cons of commercial second-charge mortgages and the considerations you need to bear in mind before proceeding to a full application
A second charge mortgage is an 'additional' mortgage which sits behind your first charge but is secured against the same commercial property.
By being second, if your business is in trouble and there is a default on mortgage payments, the second charge lender will receive the proceeds of the repossession only after the first has been satisfied.
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The Following Topics Are Covered Below
Advantages To A Commercial Second Charge Mortgage
There can be situations where you need to raise further funds. For example, to carry out renovation and refurbishment work or to extend your current business premises. A second-charge mortgage could be the right solution for you.
It is important to understand that with a second charge mortgage you will have two mortgages tied to your business paid independently of each other.
Commercial second-charge mortgages are available either on an interest-only or repayment basis. A lender will typically use the business premises as collateral for the loan.
Why Have A Second Charge Business Mortgage
There can be numerous reasons why a business owner might want to borrow under these circumstances including:
Expansion and business growth
Renovations and premises improvements
Expanding the existing property
Are Second Charge Mortgages Better Than Remortgaging
If you need to raise capital, but cannot, or do not wish to currently remortgage for whatever reason, a second charge commercial mortgage can provide you a way out.
Instead of waiting to accrue sufficient profits to pay for the work yourself, borrowing the funds will give you the opportunity to get ahead of the competition and work more efficiently.
A second charge generally is a faster way to raise finances. If you would like to understand more about this form of lending, you can request a free callback here
How Do I Qualify for Lower Commercial Rates?
The most crucial way to secure the most competitive rate is to make sure your initial application is assessed correctly against the lender's eligibility criteria. Generally, cases are looked at on a case-by-case basis, but broadly speaking lenders will look at:
Your Credit History
The viability of the business
Lenders will typically review 2-3 years of the business trading and understand what funds will be used and how much it will impact the company.
If you are able to demonstrate a good trading history and positive profitability projections, then you are more likely to secure lower interest rates.
It is also hugely important to apply to lenders who match your specific needs. It's recommended to consult a broker who has a deep understanding of the market and the criteria each lender has to offer before applying.
What Is The Maximum Loan To Value Limit on Commercial Mortgages?
When considering the Loan to Value for a commercial mortgage, understanding the current equity and outstanding debt from the first charge mortgage is the first place to start.
Let's break it down
If your business premises has a market value of £400,000, and the outstanding loan amount on your first home is £100,000, then you have £300,000 equity within the property.
Lenders for a commercial second charge mortgage would be around 50-65% Loan to Value (LTV). On this basis, you can borrow an additionally £160,000 by going up to 65%.
Are There Other Options Available Other Than A Business Second Charge Mortgage?
Second-charge mortgages are just one of the options for lending. Other options which may be more suited to your circumstances include:
Remortgaging the existing arrangement: One of the most common alternatives is exiting your current first-charge mortgage and obtaining a new mortgage with a higher loan to value. Before doing this, assess whether the total cost differential between remortgaging altogether vs taking out a second charge is. Generally, remortgaging comes out more expensive with higher upfront costs.
Unsecured Business Loans: If you are looking for a loan that is below £25,000, it may be worth considering a shorter-term unsecured business loan. This form of finance is typically a lot quicker to arrange but generally has higher interest rates
Asset Financing- If you wish to leverage business assets to raise finance, for example through cars or expensive equipment, there are options to refinance your loans against these assets and unlock working capital.
Why You Should Speak to A Commercial Mortgage Broker
In any scenario, it is always recommended to consult an independent UK commercial lending broker.
Accelerated Finance can source the best lending products, and understand which providers to apply to depending on your circumstance, many of which are not advertised on the open market.
This article is intended to provide a general understanding of the topic. The contents should not be treated as advice.
Accelerated Finance Limited only considers applications for commercial or investment properties. Accelerated Finance Limited is not regulated by the financial conduct authority and only provides unregulated loans via our network of lenders. Your property is at risk if you fail to make payments on a Mortgage Contract.
Please note that Accelerated Finance Limited and its employees do not give financial advice or recommendations on any product.