Residential mortgages are not available for purchasing a business which means; if you are looking to purchase a property to run as a hospitality business you will need a commercial mortgage.
Why you will need a commercial mortgage
Whether you are looking for a hotel mortgage, pub mortgage or b&b mortgage every premises and risk will be different, so each loan has to be assessed individually. Because of the legal and administrative costs of taking security on commercial property it is usually considered uneconomic to borrow under £100,000 this way.
- Unlike personal loans, the interest rates on commercial mortgages and for business loans are not pre-determined
- Rates will be quoted on application only and the rate offered will take into account the riskiness of the loan.
- Larger loans with a low risk will get the best rates.
- Lenders usually have a risk profile that they work to, so if your loan falls outside their risk profile it will be declined.
Valuations for hotel, pub or B&B mortgages
Because these are commercial mortgages, lenders will request that a commercial valuation survey be carried out on the business before making a formal offer, subject to valuation. This is not a structural survey of the building, it is a report on the premises and business both historically and potential going forward.
These valuation reports are very detailed and typically run to around 40 pages. They set out what the business is worth and this is the figure the lender will work from. So, if you have offered to purchase the business, subject to valuation, typically at or below the guide price and should the valuation come in less than your offer you will then have to consider re-negotiating the offer based on these reported value as the lender will only offer debt on the valuation or the agreed purchase price whichever is the lower.
Help with your hotel, pub or B&B mortgages
Because lending managers require a great deal of information in order to assess the risk level of loans, it makes sense to use a specialist commercial broker who has the contacts and market knowledge to get you the best deal and will be able to identify the best lenders for you and present your case to them. Although a broker fee will apply this will be offset by a competitive interest rate and terms.
Finding the right broker for commercial mortgages
When checking out a broker, look for members that are registered under the FCA and are members of the National Association of Commercial Finance Brokers. All NACFB members have Professional Indemnity insurance and are obliged to abide by a code of practice.