What deposit do you need to buy a commercial property?

Answer

The deposit required for purchasing commercial property is typically around 25% of the total property value for a commercial mortgage. However, this figure can change based on various factors, including the borrower's business circumstances, credit assessment, and the amount being borrowed.

Unlike when buying a residential property, each lender has its own way of assessing the amount required for a deposit. Lenders assess several criteria to determine the appropriate deposit amount. Industry experience plays a significant role, with established businesses often seen as lower risk, potentially requiring a smaller deposit. Conversely, start-ups or struggling companies may need to provide a larger deposit to secure financing.

Profitability is another crucial factor. Lenders favour businesses with a solid financial track record and promising forecasts, as they pose less risk. On the other hand, doubts about profitability may result in higher deposit requirements to mitigate potential risks.

The type of business also influences the deposit amount. Higher-risk industries, such as pubs or clubs, typically need a larger deposit compared to businesses in more stable sectors.

Credit history, both personal and business-related, is another determinant. Adverse credit records may lead to higher deposit requirements, as lenders perceive greater risk associated with lending to individuals or businesses with poor credit.

Additionally, the type of property can impact the deposit. Non-standard constructions or properties requiring extensive renovations may demand a higher deposit to offset potential risks associated with their condition.

Considering these factors, potential buyers should carefully evaluate their circumstances and work with lenders or specialists to determine the most appropriate financing options for their commercial property purchase.