If you are thinking about buying premises for your business, the deposit is usually the first practical question. The honest answer is that there is no single figure. Commercial mortgage lenders each have their own approach, and the deposit they expect depends on the property, the business and the deal as a whole.
This guide explains what shapes that number, so you can have a more informed conversation with a specialist.
Why commercial deposits tend to be higher
Residential mortgages are a high-volume, standardised market. Commercial property is not. Each building is different, values can move more sharply, and if a lender ever had to sell the property, it might take longer to find a buyer than it would for a house.
Lenders manage that uncertainty by asking the borrower to carry a bigger share of the risk. In practice that means commercial deposits are generally higher, as a proportion of the price, than most people are used to from residential lending.
What lenders look at when setting the deposit
Lenders talk in terms of loan-to-value, or LTV: the loan as a percentage of the property's value. The deposit is simply the gap between the two. Several things influence where a lender is prepared to sit.
The type of property
Some property types are seen as easier to value and to re-let or resell than others. A modern industrial unit on an established estate, for example, is often viewed differently from a specialist building that suits only one kind of occupier. The more specialised the property, the more cautious a lender may be.
The strength of the business
For an owner-occupier, the business is what pays the mortgage. Lenders typically look at trading history, profitability and how comfortably the projected repayments fit within the business's income. A well-established business with consistent accounts may be offered more flexibility than a newer one.
Whether the property is occupied or let
If you are buying premises to occupy, lenders assess the business. If you are buying to let to tenants, they focus on the rental income and the quality of the tenants and leases. The two are assessed differently and deposit expectations can differ as a result.
The borrower and their experience
Whether you are buying personally, through your trading company or through a separate property company can affect how a lender views the deal. Relevant experience, personal financial standing and any guarantees offered are also part of the picture.
Does the deposit have to be cash?
Not always. Lenders are generally interested in the equity going into the deal, and that can sometimes come from sources other than a bank balance:
- Equity in another property. Some borrowers refinance an existing property to raise the deposit, or offer additional security.
- A discounted purchase price. If you are buying below market value, for example from a landlord you already rent from, some lenders may take the difference into account. This depends heavily on the lender and on an independent valuation.
- Director's loans or retained profits. For company purchases, funds already in the business can form part of the contribution.
Every lender treats these differently, and some will want the deposit to come from your own resources rather than further borrowing. This is exactly the sort of detail a specialist can help you think through.
Costs beyond the deposit
The deposit is not the only money you will need. It is worth budgeting for:
- Valuation and survey fees
- Legal fees, including the lender's legal costs where these are passed on
- Arrangement fees, which lenders may charge as a percentage of the loan
- Stamp Duty Land Tax (or the equivalent in Scotland and Wales)
- Any refurbishment or fit-out the premises need before you can trade from them
None of these are fixed and all vary with the lender and the property, so ask for a full breakdown before you commit.
What if you don't have enough deposit?
If the gap is too large, there are usually a few routes to explore. Some borrowers look at a smaller or cheaper property, wait and build up funds, or use equity elsewhere. Others consider whether a different structure, such as buying with a partner or through a separate property company, changes the picture. A specialist will be able to discuss what is realistic given your circumstances, rather than you guessing.
How FundingFrame fits in
FundingFrame does not set deposit requirements and cannot tell you how much a lender will want. What we do is ask the questions a specialist would ask first: the property, the price, the deposit you have available, how the business trades and when you need the finance, and structure your answers into a Deal Snapshot. Where appropriate, that snapshot is introduced to a specialist commercial finance broker who can discuss the options with you.
Key points
- There is no universal deposit for a commercial mortgage; it depends on the lender, the property and the business.
- Commercial deposits are generally higher, as a proportion of the price, than residential ones.
- Property type, business strength, occupation versus letting, and borrower experience all influence what lenders expect.
- Equity in other property, a discounted price or funds already in the business can sometimes count towards the contribution, depending on the lender.
- Budget for fees, tax and any works on top of the deposit itself.
- A specialist can tell you what is realistic for your deal; FundingFrame can help you get that conversation started.