Yes. Limited companies take out commercial mortgages all the time. In fact, a large share of commercial property in the UK is owned through companies of one kind or another, and lenders are well used to lending to them.
The more useful questions are which kind of company should own the property, what the lender will look at behind the company, and what you personally may be asked to commit to. This guide covers each in turn.
Which company will own the property?
There are two common approaches, and they have different implications.
Buying through the trading company
The business that will occupy the premises buys them directly. This is straightforward: the property sits on the company's balance sheet, the company pays the mortgage, and the lender assesses the same business that generates the income.
Buying through a separate property company or SPV
An SPV, or special purpose vehicle, is a limited company set up specifically to hold property. The SPV buys the premises and lets them to the trading business, which pays rent. Owners sometimes prefer this because it keeps the property separate from the risks of the trading business, and because it can make things simpler if the business is sold later.
Which is right for you depends on tax, succession plans, how the business is structured and your own preferences. It is a decision to take with your accountant, ideally before you approach lenders, because it affects how the case is assessed.
What lenders look at behind the company
A limited company has its own legal identity, but lenders do not assess it in isolation. They typically want to understand:
- The trading business. Accounts, turnover, profitability and how affordable the repayments look, whether the trading company is the borrower or the tenant of an SPV.
- The directors and shareholders. Their experience, personal financial standing and credit history. A company is only as strong as the people running it.
- The company's history. A newly formed SPV has no track record, which is normal; lenders then look more closely at the people behind it and at the trading business paying the rent.
- The purpose of the purchase. Whether the premises will be occupied, let, or a mix of both.
Because a new SPV has no accounts of its own, some people worry it will be harder to finance. In practice many lenders are comfortable with new SPVs, precisely because they look through to the individuals and the trading business.
Personal guarantees
When lending to a limited company, lenders commonly ask the directors or shareholders for a personal guarantee. This means that if the company cannot repay the loan, the lender can pursue the guarantors personally for some or all of the shortfall.
Guarantees vary. Some cover the whole loan; others are limited to a percentage or a fixed sum. Lenders will usually require you to take independent legal advice before signing one. It is important to understand exactly what you are agreeing to, and to discuss it with a solicitor, before you commit.
Other things a lender may require
Depending on the lender and the deal, you may also come across:
- A debenture: a charge over the company's assets in addition to the property itself.
- A cross-guarantee between the SPV and the trading company where they are separate.
- Assignment of the lease between the SPV and the trading business.
- Restrictions on the company paying dividends or taking on further borrowing without consent.
None of these are universal, and a specialist can explain which are likely to apply.
Practical steps before you apply
- Decide on the ownership structure with your accountant.
- If you are forming an SPV, set it up before you make an offer so the purchase can proceed in the right name.
- Get your trading accounts and recent bank statements in order. They will be needed regardless of which company borrows.
- Think about who will provide guarantees and whether they are comfortable doing so.
- Be clear about how the premises will be used, and whether any part will be let to third parties.
Where FundingFrame fits
FundingFrame does not advise on structure and does not lend. When you tell us about your deal, we ask who the borrower will be (trading company, SPV, partnership or individual) alongside the property, the amount and the timescale. That goes into a Deal Snapshot which, where appropriate, we introduce to a specialist commercial finance broker who can discuss the options with you.
Key points
- Limited companies, including newly formed SPVs, regularly obtain commercial mortgages.
- The choice between buying through the trading company or a separate property company has tax and structural implications, so take advice.
- Lenders look behind the company at the trading business, the directors and shareholders.
- Personal guarantees are common; understand their scope and take legal advice before signing.
- Set up the right entity before you offer, and have the accounts and statements ready.
- A specialist can talk through which lenders are comfortable with your structure.