September 1, 2022

What Are Business Investment Property Loans?

Business investment property loans are for companies and individuals looking to buy a commercial property to rent out.

Otherwise known as a commercial investment mortgage or a business buy-to-let mortgage, a business investment property loan is a type of mortgage you will need to buy a commercial property to rent out to other businesses.

By purchasing a commercial property and renting it out to businesses, you can profit from rent and earn money from the property if it increases in value.

How Does a Business Investment Property Loan Work?

You use a business investment property loan to purchase a property to rent out to only businesses. That means you cannot rent out the property to private tenants. 

Lending can be against all types of commercial properties, including:

  • Offices
  • Retail units
  • Shopping centres
  • Warehouses and factories
  • Pubs, cafes and restaurants
  • Doctors surgeries and dental practices
  • Veterinary practices
  • Care homes and retirement villages
  • Hotels and guest houses
  • Schools and nurseries
  • Leisure centres

If you’re a first-time investor, it is possible to get a good deal, but your lender options might be more limited. The majority of lenders will look at your credit history, the property value and the potential rental income when considering your loan application. You may also find that some lenders will want you to have a tenant in place before offering you a loan.

Are Business Investment Property Loan Rates More Expensive?

Interest rates and deposit requirements are usually higher than residential home loans, as business investment property loans tend to be more complex and are considered higher risk to lenders. However your loan will be less expensive if lenders see you as a less risky customer. 

Business investment property loan rates can be either fixed or variable, and a substantial deposit should give you access to some of the best deals.

Several things can affect the interest rate a lender will charge you:

  • Your credit history
  • Your loan-to-value (LTV) ratio
  • Your affordability
  • Your experience
  • Your current or target tenant
  • Your chosen lender

Can I Purchase a Commercial Property in a Company Name? 

Yes, you can take out a business investment property loan in a company name or your own name. Alternatively, you can set up a Special-Purpose Vehicle (SPV) to buy and rent a commercial property. Whether you are thinking about setting up an SPV or purchasing a commercial property in a company name or your own name, we recommend you get professional advice to help you understand the tax and legal implications to enable you to make the best decision for you.

What Other Costs Will I Encounter? 

Before you purchase a commercial property, you must calculate all the fees involved. Stamp duty is one of the most expensive upfront costs, and you have to pay lender arrangement fees, valuation fees and legal fees. 

You also need to take into account the following ongoing commercial property ownership costs: 

  • Business rates
  • Business property insurance 
  • Annual checks and certifications
  • Repair and maintenance costs
  • Ground rent (if not a freehold)
  • Estate agency fees
  • Legal costs on new leases

Another thing you need to consider is void periods, which can sometimes last months or even years. You don’t have to pay business rates for the first three months your property is empty, but you will have to pay rates after this period. Having said that, some vacant properties can get extended relief, such as industrial premises and listed buildings.

Can I Use This Type of Loan for an HMO or Mixed-Use Property?

You will have to get an HMO mortgage if you want to buy a house of multiple occupancy to rent out to three or more individuals who are not from the same household. 

If you need a loan to purchase a property that contains both commercial and residential elements, you will need a semi-commercial mortgage. For example, if you want to buy a pub or shop with a residential living area.

Will I Get a Business Investment Property Loan with a Bad Credit History? 

Getting a business investment property loan with a bad credit history can be difficult, but it is possible. Lenders may limit the amount you can borrow or charge you high interest as you will be more of a risk to them. You might even have to seek out lenders who deal with poor credit customers. Even if you don’t have a bad credit history, it’s worth checking for any mistakes on your credit reference file and increasing the amount of on-time payments you make before applying for a business investment property loan.  

The entire business investment property loan application process is carried out within the Provide platform. You can chat directly with the most suitable lender, exchange documents, and secure your funding in one place. With our easy to use platform, Provide can guarantee you get the best deal available based on your circumstances. 

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