Second charges are available on commercial mortgages, depending on what you want to borrow for, how much you need to borrow, and how closely the application meets the lender's criteria.
We have explained below some of the factors to consider, and what other options are available.
If you would like to proceed with a second charge mortgage application, or need help identifying the best lending type for your needs, give the Revolution Brokers team a call on 0330 304 3040 or email us at email@example.com.
How do Commercial Property Second Charge Mortgages Work?
A second charge mortgage is an additional mortgage, separate from your existing borrowing, but also secured against the same commercial property.
Being 'second' means that, should the business fail, or default on the mortgage repayments, then the first mortgage provider would have the first claim to the proceeds of property repossession, with the second charge mortgage provider next in line.
Are There Advantages to a Commercial Second Charge Mortgage to Raise Finance?
There can be, yes, and many businesses use a second charge where they need to raise capital for property improvements.
It is essential to understand that you would then have two separate mortgages to repay. Commercial second charge mortgages are only available to businesses with an existing mortgaging property.
You can choose between interest-only and repayment products. The lender will also need security, usually the property but sometimes in another form.
Why Choose a Second Charge Business Mortgage?
There are several scenarios when a second charge mortgage is an attractive business option:
- Expansion and business growth.
- Renovations and premises improvements.
- Expanding the existing property.
Is a Second Charge Mortgage Better than Remortgaging?
In many cases, a remortgage is unavailable, or undesirable. For example, if your existing lender is unable to consider a remortgage but offers excellent rates, or you have a very low-interest charge that is no longer available on the market.
A second charge mortgage is usually a fast way to raise finances.
How Can I Get the Lowest Rates on a Commercial Second Charge Mortgage?
The most competitive rates are offered to businesses that meet all, or most of, the lender criteria. This is why using a broker for the application stage is critical to ensure you get the best deal possible.
Lenders will look at each business on its own merit, and will consider:
- Your credit history.
- How much deposit is available.
- The stability of the business.
- Your profit and affordability.
Lenders will want to review the business trading, and understand what the second charge loan will be used for, and how that will impact the company.
If you can demonstrate a good trading history, positive profitability projections and present a viable application, you are more likely to secure lower interest rates.
The other critical factor is to ensure you apply to the right lenders, who have experience in your business sector and can consider your application.
It is therefore always advisable to consult a broker, who can recommend where you will find the most competitive deals.
Is there a Maximum Loan to Value Cap on Commercial Second Charge Mortgages?
First, you need to calculate how much equity you own. For example, if you owe £100,000 on a business mortgage against a property worth £300,000, you own £200,000 worth of equity.
In most scenarios, lenders will offer up to 50-65% on a second charge business mortgage, and so, in this case, you would be able to apply for around £50,000 to £95,000 depending on the lender.
Are there Alternatives to a Business Second Charge Mortgage?
Indeed there are - businesses can choose from multiple forms of lending. Some of the other options include:
- Remortgaging. This is often the best option before a second charge mortgage, although it depends on the rates and terms available from your current lender. You might find that a second charge mortgage is cheaper if better rates are on offer.
- Unsecured business loans - if you need a lower value under £25,000, a short-term unsecured loan can be a quicker and more straightforward option without the same security requirements.
- Asset financing. This is a way to leverage business assets to raise finance, such as cars or plant. Asset finance allows you to raise capital through a loan secured against those assets.
Consult an Expert UK Commercial Lending Broker
In any scenario, it is always recommended to consult an independent UK commercial lending broker. The Revolution team can advise on the best lending products, which providers to apply to, and scour the market for the best deals available, many of which are not advertised on the open market.
Give us a call today to review your options, on 0330 304 3040, or email the Revolution Brokers office at firstname.lastname@example.org.