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Commercial Mortgages

In the dynamic world of business, property is often the foundation upon which success is built. Whether it is the environment from which you operate, or an investment generating attractive yields, securing the right commercial mortgage is a key financial decision. At Silver Oak Capital, we understand that commercial finance is not a one-size-fits-all product, it is a bespoke tool designed to propel your objectives forward.
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What is a Commercial Mortgage?

A commercial mortgage is a loan used to buy property or land for business or investment purposes. This includes asset types such as office, retail, industrial, multifamily, hotels, and many others that are not purely residential. It is important to note that the mechanics of a commercial mortgage differ in complexity and criteria from residential mortgages.

The Distinction from Residential Mortgages

Unlike residential mortgages, which are largely based on the income of the borrower, commercial mortgages focus heavily on the profitability of the borrowing company or strength of the lease in place for the property. In that sense, buy-to-let mortgages are actually a type of commercial mortgage. The key takeaway is that both are unregulated mortgages – where the borrower is not residing in the premises. Commercial mortgages are typically used to purchase land, retail outlets, office blocks, industrial units, or warehouses. They are often also used to refinance existing commercial loans to release equity for working capital purposes and cash flow management.

Who Needs a Commercial Mortgage?

Owner-Occupiers (Regulated)

This category includes business owners who purchase the premises that they will operate or trade from. By owning their trading premises, they gain security of tenure, avoid rent reviews, and build a tangible asset on the company balance sheet. This is common among professionals (dentists, solicitors), retailers, and manufacturers who want stability for their operations.

Property Investors

These are individuals or companies purchasing commercial property specifically to let out to third-party tenants. For the investor, the property acts as a vehicle for passive income. Yields for commercial leases are often longer than residential ones and the returns can be significantly higher. Investors often seek commercial finance that maximises leverage to amplify their Return on Equity (ROE).

Key Considerations and Terms

Loan-to-Value (LTV)

This measures the percentage of the property value you can borrow. For commercial mortgages, this is typically lower than residential mortgages. LTVs for commercial mortgages are usually between 65% and 75% depending on the property type, borrower profile, and lease strength.

Affordability and EBITDA

A key factor that lenders scrutinise is the borrower’s Earnings Before Interest, Tax, Depreciation, and Amortisation (EBITDA). For owner-occupied properties, the business’s net profit must comfortably cover the mortgage repayments. For investors, the rental income must typically equal at least 125% – 145% of the monthly mortgage payment.

Pricing

Pricing for commercial mortgages is usually calculated using risk-based models. The borrower will typically have the option to choose from a variable rate or fixed rate. Variables rates in the UK are benchmarked off the Bank of England (BOE) Base Rate or Sterling Overnight Index Average (SONIA) with a margin added to account for risk. Fixed rate mortgages will typically be offered for either 2 years or 5 years.

Repayment Structure

A key consideration is whether to repay the facility through an interest only or capital repayment structure. Capital repayment ensures the asset is debt-free at the end of the loan term as your monthly repayments service both the interest and the principal. Many investors prefer interest only given this is allows for more conservative cash outflow (smaller payments that only service the interest).

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How Silver Oak Capital Assists

The commercial mortgage landscape is fragmented and often opaque. Silver Oak Capital acts as your navigator and funding partner, ensuring you secure the facility that aligns with your wider business strategy.

  • Whole-of-Market Access

    The landscape of commercial lending is saturated and with the abundance of available options, often overwhelming. We have established relationships with hundreds of lenders to ensure we source our clients the most competitive, bespoke, and tailored funding arrangement available.

  • Professional Presentation

    A commercial mortgage application is similar to a business pitch. Lenders need to buy into the narrative of your investment or business. We package your application effectively to present your case in the strongest possible light by anticipating lender questions before they are asked and ensuring the details are clear.

  • Negotiating Terms

    Given we have strong relationships and handle significant loan volumes, we can often negotiate terms that are unavailable to individuals who approach lenders directly. Whether it is pushing for a higher LTV, negotiating a lower interest rate, or securing a longer interest only period, we help structure the terms of your deal to ensure it meets your objectives.

FAQs

A typical timeframe is 8 to 12 weeks from application to completion. This allows time for detailed commercial valuations and legal due diligence. Silver Oak Capital can expedite this process by ensuring all required documentation is in place upfront whilst chasing all parties (valuers, solicitors, lenders) proactively.
Often yes, depending on the scale. Large mainstream banks generally require a clean credit history, but there is a robust market of specialist lenders whose credit appetite is strong and are willing to look at the bigger picture. If your business is currently profitable and the property security is strong, Silver Oak Capital place your case with the lender willing to overlook historical credit issues, albeit at a slightly higher interest rate.
The common fees to budget for are: lender arrangement fee; valuation fee; legal fee; broker fee. We will provide a transparent breakdown of all expected costs at the outset so there are no surprises.

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