How to Get a Commercial Mortgage: Step-by-Step
Getting a commercial mortgage in the UK is more involved than a residential mortgage, but with the right preparation, the process is straightforward. A commercial mortgage is a loan used to purchase, refinance, or release equity from commercial properties. This guide walks you through every step, from assessing your eligibility to securing the best deal from the right lender.
Whether you are a business owner looking to buy commercial property for your own premise, a property investor acquiring commercial properties, or a developer seeking to refinance a completed project, this guide covers the essential steps and what commercial mortgage lenders are looking for.
Step 1: Understand What a Commercial Mortgage Is
A commercial mortgage is a loan secured against commercial property, used to purchase or refinance non-residential property. Unlike residential mortgages, commercial mortgages are typically not regulated by the Financial Conduct Authority, giving lenders greater flexibility in their lending criteria but also meaning borrowers have fewer statutory protections.
Commercial mortgages are suitable for:
- Owner-occupied — Business owners buying their own business premises (offices, shops, warehouses, factories, surgeries). An owner-occupied mortgage is the most common type of loan for businesses looking to buy their own premise.
- Investment — Purchasing commercial properties to lend against and generate rental income. A commercial mortgage could provide long-term finance for property investment.
- Semi-commercial — Mixed-use buildings with both commercial and residential elements. A semi-commercial mortgage covers these property types.
- Refinancing — Replacing an existing loan with better terms or releasing equity from a property you already own.
The type of loan you need affects which commercial mortgage lenders to approach, the documentation required, and the eligibility criteria applied. Understanding which mortgage product fits your business purposes is the first step.
Step 2: Check Your Eligibility
Before approaching lenders, assess whether you meet the typical eligibility requirements for a commercial mortgage:
Business Trading History
For owner-occupied commercial mortgages, most lenders require 2-3 years of business accounts. Lenders want to see that the business can sustainably repay the loan from trading profits. Startups and businesses with less than 2 years of trading history will find fewer options, though some specialist lenders can help business owners in this position.
Credit History
Lenders check the personal credit history of directors and guarantors, plus any business credit records. A clean credit history provides access to the widest range of lenders and best rates. Adverse credit (CCJs, defaults, missed payments) does not automatically disqualify you from securing a commercial mortgage, but options will be more limited and rates higher.
Deposit or Equity
You will typically need a deposit of 25-35% of the property purchase price. For refinancing, you need at least 25-30% equity in the property. The value of the property is confirmed by an independent RICS valuation. Some specialist lenders may accept 20% deposits for strong applications, while higher-risk cases may require 40%+.
Income and Affordability
For investment properties, lenders assess whether the rental income covers the mortgage payments — typically requiring a DSCR of 1.25x to 1.50x. For owner-occupied, lenders assess the business profits and cash flow projections. The lender needs confidence that the borrower can repay the loan throughout the term of the loan.
Business Structure
Commercial mortgages are available to sole traders, partnerships, limited companies, LLPs, SPVs, and trusts. The borrower structure affects which lenders are available and the documentation required. A limited company is the most common structure for commercial property purchases.
If you are unsure about your eligibility, a mortgage broker can provide a no-obligation assessment. [Contact us](/contact) for expert guidance.
Step 3: Choose Your Mortgage Product
Types of commercial mortgage vary considerably. Understanding each mortgage product helps you select the right option for your circumstances.
By Interest Rate Type
- Fixed interest rate — Your rate stays the same for a set period (2-10 years), providing certainty over monthly payments. A fixed rate protects against interest rate rises.
- Variable/tracker rate — Your rate moves with the Bank of England base rate, meaning payments can go up or down. Some lenders lend at the bank of england base rate plus a fixed margin.
- Standard variable rate — The lender's own rate, which can be changed at their discretion.
By Repayment Type
- Repayment (capital and interest) — Monthly payments include both interest and principal repayment, reducing the loan balance over the loan term.
- Interest-only — Monthly payments cover interest only; the capital is repaid at the end of the term.
- Part-and-part — A combination of repayment and interest-only.
By Property Use
- Owner-occupied mortgage — For businesses buying their own premise to trade from.
- Commercial investment mortgage — For buy-to-let or commercial investment properties.
- Semi-commercial mortgage — For mixed-use properties with both commercial and residential elements. Types of commercial properties in semi-commercial include shops with flats above.
- Buy-to-let mortgage — For residential investment properties held through a limited company or personally.
The right mortgage product depends on your specific situation. A specialist mortgage broker can model different options and show you the total cost of each, helping you find the right commercial mortgage.
Step 4: Prepare Your Documentation
A well-prepared application significantly increases your chances of approval and speeds up the process. Having all documentation ready demonstrates to the lender that you are a serious borrower.
**Financial documents:**
- 2-3 years of certified or audited business accounts
- Latest management accounts (current year)
- Personal tax returns for directors/guarantors (2 years)
- Personal asset and liability statement
- Business bank statements from your business banking provider (3-6 months)
- Cash flow projections (for owner-occupied)
**Property documents:**
- Property details and marketing information for the property purchase
- Tenancy schedule (for investment properties — showing tenant details, rent amounts, lease terms)
- Lease documents and heads of terms
- Planning permissions or building regulations approvals if applicable
- Service charge schedules (for leasehold property)
**Corporate documents:**
- Certificate of incorporation
- Memorandum and articles of association
- Details of directors and shareholders
- Personal ID and address verification for all parties
Having these documents ready before you apply avoids delays. Your mortgage broker or relationship manager can confirm the exact requirements for your chosen lender.
Step 5: Find the Right Lender
The UK commercial mortgage market includes hundreds of commercial mortgage lenders, each with different appetites, lending criteria, and pricing. Owning commercial property starts with finding the right lender for your specific case.
High Street Banks
Lenders like Lloyds, NatWest, Barclays, and HSBC offer competitive rates for lower-risk propositions. They prefer established businesses, mainstream property types, and conservative LTVs. Applications typically go through a relationship manager who oversees your range of business banking needs.
Challenger Banks
Lenders such as Allica Bank, Shawbrook, Aldermore, and Hampshire Trust have grown significantly. They offer more flexibility than high street banks, often with faster decision-making and broader lending criteria.
Specialist Commercial Mortgage Lenders
For non-standard properties, complex structures, or higher LTV requirements, specialist lenders provide solutions mainstream banks cannot. They charge higher rates but have greater appetite for unusual cases. Types of commercial properties that require specialist lenders include pubs, hotels, and care homes.
Building Societies
Some building societies offer commercial lending, particularly for smaller facilities and local properties.
A specialist mortgage broker has relationships across all these categories and can identify the best lender for your specific case. This is particularly valuable because:
- Many commercial mortgage lenders do not deal directly with the public
- Lending criteria and appetite change frequently
- A broker can negotiate better terms than you would achieve alone
- If one lender declines, a broker immediately knows which alternatives to try
Step 6: Apply for a Commercial Mortgage and Navigate the Process
The commercial mortgage application process follows these stages:
Agreement in Principle (AIP)
Your broker presents your case to selected lenders and obtains indicative terms. An AIP confirms the likely loan amount, rate, loan term, and conditions. This gives you confidence to proceed with a property purchase.
Full Application
Once you accept the indicative terms, a full application is submitted with all supporting documentation. The lender reviews everything to decide whether to lend.
Valuation
The lender instructs an independent RICS valuation to confirm the property value, assess the property condition, rental potential, and any risks. This typically takes 1-3 weeks.
Credit and Due Diligence
The lender conducts credit checks, anti-money laundering verification, and reviews all documentation. For larger facilities, an underwriter reviews the case in detail.
Formal Offer
If satisfied, the lender issues a formal mortgage offer detailing all terms and conditions. The offer is typically valid for 3-6 months.
Legal Completion
Solicitors for both sides complete legal work, exchange contracts, and transfer funds. The mortgage is registered against the property title.
Timescales vary but a typical commercial mortgage takes 6-12 weeks from application to completion. Complex cases or properties requiring additional due diligence can take longer. A commercial mortgage could complete faster when the application is well-prepared and submitted through the right broker.
Tips for Getting Approved
Based on our experience arranging hundreds of commercial mortgages, here are practical tips to maximise your chances of securing a commercial mortgage:
- Apply to the right lender — The single biggest factor in success is approaching a lender whose lending criteria match your case. A specialist broker ensures this.
- Present a clean, complete application — Missing documents delay the process and create a negative impression with the relationship manager.
- Be realistic about property value and income — Inflated expectations lead to valuations below the required level. The lender needs to be confident in the value of the property.
- Explain any complexities upfront — If there are issues (adverse credit, unusual property types, limited trading history), flag them early so the broker can select appropriate lenders.
- Have your deposit ready — Proof of deposit source is required. Ensure funds are available and traceable.
- Expand your business by strengthening financials — If your application is borderline, 6 months of improved trading for business purposes can make the difference.
If you need a bridging loan to buy a commercial property without waiting for a full mortgage, this can bridge the gap while you arrange permanent finance. See our [bridging finance service](/services/commercial-bridging) for more details.
What If Your Application Is Declined?
If your commercial mortgage application is declined, do not assume that means you cannot borrow. Declines often result from approaching the wrong lender, not from fundamental issues with the borrower or property.
Common reasons for decline include:
- Property type outside the lender's appetite — not all property types suit every lender
- LTV too high for that specific lender
- Insufficient trading history for owner-occupied (but investment mortgage lenders may be fine)
- Credit issues that are manageable with a specialist lender
A commercial mortgage is a loan used to purchase, refinance, or invest in commercial properties, and there are many types of commercial mortgage lenders with different appetites. A specialist broker can often find an alternative lender for cases that have been declined elsewhere. [Contact us](/contact) if you have been turned down and need a second opinion.
Alternative finance options include a [bridging loan](/services/commercial-bridging) for short-term needs or [development finance](/services/development-finance) for construction and conversion projects. A buy-to-let mortgage may be more appropriate if you are looking to buy residential property for investment.
*Written by Matt Lenzie, Founder of Commercial Mortgages Broker. Ex-Lloyds Bank & Bank of Scotland.*