Commercial Term Finance -

Commercial term finance provides medium to long-term secured lending against commercial property, with fixed repayment schedules and terms typically ranging from 3 to 25 years. Unlike short-term bridging finance which is designed for speed and temporary use, commercial term loans are structured for the long term — providing businesses and investors with the stability to own, operate from, or invest in commercial property over many years with predictable monthly repayments.

Platinum Global Bridging Finance arranges commercial term finance from £250,000 to £50 million for owner-occupied and investment commercial property across the UK and Europe. We access specialist commercial lenders, high street banks, challenger banks, private banks, and institutional debt funds through our panel of 100+ lenders. Indicative terms within 24 hours from our offices in London (64 Knightsbridge, SW1X 7JF) and Manchester (Railway House, Urmston, M41 6NA). No broker fee on facilities of £500,000 or above.

How Commercial Term Finance Works

A commercial term loan is secured against the commercial property being purchased or refinanced. The lender advances the agreed amount (typically 60-75% of the property’s market value), and the borrower repays the loan over the agreed term through monthly instalments. The property itself serves as collateral — if the borrower defaults, the lender has the right to take possession and sell the property to recover the outstanding debt.

Commercial term finance differs from residential mortgages in several important ways. Interest rates are higher — typically 2-5% above the Bank of England base rate, reflecting the increased risk of commercial lending compared to residential. LTV is lower — most lenders cap commercial lending at 60-75% LTV, compared to 75-95% for residential mortgages. Underwriting is more complex — the lender assesses the property’s income-generating capability, the borrower’s business strength, and the overall transaction structure. Terms are also typically shorter — while residential mortgages commonly run for 25-35 years, commercial terms are usually 3-25 years with many lenders offering 10-20 year terms as standard.

Interest Rate Structures

Fixed Rate Commercial Mortgages

The interest rate is locked for a specified period — typically 2, 3, 5, or 10 years. Fixed rates provide certainty of monthly payments, making budgeting and cash flow management straightforward. This is particularly valuable for owner-occupied businesses where predictable property costs are essential for business planning. At the end of the fixed period, the loan reverts to the lender’s standard variable rate (SVR) unless the borrower refinances onto a new fixed deal. Fixed rates are generally slightly higher than equivalent variable rates because the lender absorbs the risk of rate movements during the fixed period.

Variable Rate Commercial Mortgages

The interest rate tracks the Bank of England base rate or LIBOR/SONIA, moving up or down as the reference rate changes. Variable rates are typically lower than fixed rates at the point of drawdown, but carry the risk that payments increase if the base rate rises. Variable rate products suit borrowers who are comfortable with some payment variability and who may want to repay the loan early without incurring early repayment charges (ERCs), as variable rate products typically have lower or no ERCs compared to fixed rate deals.

Capped Rate Commercial Mortgages

A variable rate with an upper limit (cap) — the rate tracks the base rate but cannot exceed the cap, regardless of how high the base rate goes. Capped rates combine the potential savings of a variable rate with protection against extreme rate increases. They are less common than fixed or variable products but available from some specialist lenders.

Repayment Structures

Capital and Interest (Repayment)

Each monthly payment covers both interest on the outstanding balance and a portion of the capital. Over the term of the loan, the entire balance is repaid — at the end of the term, the borrower owns the property outright with no remaining debt. Monthly payments are higher than interest-only because they include capital repayment, but the total cost of borrowing over the life of the loan is lower because the balance reduces each month.

Interest-Only

Monthly payments cover only the interest on the outstanding balance — no capital is repaid during the term. The full loan amount remains outstanding and must be repaid at the end of the term, either through sale of the property, refinancing onto a new facility, or from other resources. Interest-only is popular with commercial property investors because it minimises monthly cash outflow and maximises rental yield. However, lenders typically require a clear exit strategy for repaying the capital at term end. Some lenders offer interest-only for the full term; others limit it to a specified period (e.g., 5 or 10 years) before requiring the borrower to switch to capital-and-interest repayment.

Part-and-Part

A combination of interest-only and capital repayment — the borrower pays interest-only for an initial period (typically 2-5 years) then switches to capital-and-interest for the remainder of the term. This structure is useful for businesses that need lower payments in the early years (e.g., during a transition period, start-up phase, or refurbishment programme) before the property generates its full income potential.

Balloon Payment Structures

The loan is amortised over a longer period than the actual loan term, resulting in lower monthly payments but a large “balloon” payment at the end. For example, a loan might be amortised over 20 years but have a 5-year term — monthly payments are calculated as if the loan were being repaid over 20 years, but the remaining balance is due in full at the end of year 5. This structure is used where the lender wants to reassess the loan at regular intervals but the borrower needs lower monthly payments. The balloon payment is typically covered by refinancing onto a new term.

What Commercial Term Finance Is Used For

Purchasing Owner-Occupied Premises

Businesses purchasing property to operate from — offices, workshops, factories, surgeries, retail units, restaurants, and warehouses. The lender assesses the business’s trading history and profitability to confirm it can service the debt from business income. This is the most straightforward use of commercial term finance and attracts the most competitive terms.

Commercial Property Investment

Investors purchasing commercial property to let to tenants for rental income. The lender focuses on the rental income, tenant quality, and lease terms. This includes offices let to professional firms, retail units let to national chains, industrial units let to manufacturing or logistics businesses, and mixed-use properties with commercial and residential elements.

Refinancing

Replacing an existing commercial mortgage with a new facility — typically to secure a lower interest rate, release equity from a property that has increased in value, extend the repayment term, or consolidate multiple facilities into a single loan. Refinancing is also the standard exit for commercial bridging loans and development finance facilities once the short-term requirement is complete.

Equity Release

Borrowing against equity in an existing commercial property to raise capital for business purposes — expansion, equipment purchase, acquisition, or working capital. The lender lends a percentage of the property’s current market value, minus any existing debt secured against it.

SIPP and SSAS Purchases

Commercial property purchased through a Self-Invested Personal Pension (SIPP) or Small Self-Administered Scheme (SSAS). The pension scheme owns the property and receives rental income tax-free. Commercial term finance is available to SIPP and SSAS schemes, typically at 50-60% LTV.

Lending Criteria

Facilities from £250,000 to £50 million
LTV up to 75% (some lenders to 80% with additional security)
Terms from 3 to 25 years
Fixed rates from 2% above base rate; variable rates from base rate + 1.5%
Repayment options: capital-and-interest, interest-only, part-and-part, balloon
Available to individuals, sole traders, partnerships, LLPs, limited companies, SPVs, trusts, and pension funds
Owner-occupied and investment properties
All UK commercial property types considered
2-3 years of business accounts required (or business plan for start-ups)
Personal guarantees typically required

Costs and Fees

Interest rates: 2-5% above base rate, depending on LTV, property type, tenant quality, and borrower profile
Arrangement fees: 0.5-2% of the facility
Valuation fees: £2,000-£10,000+ depending on property value and complexity
Legal fees: £3,000-£15,000+ for both sides
Early repayment charges: Typically 1-5% of the outstanding balance if repaid during the fixed rate period. Variable rate products often have lower or no ERCs

Worked Example: Office Investment

An investor acquires a 3,000 sq ft office building in a regional business park for £550,000. The property is let to an accountancy firm on a 15-year lease at £40,000 per annum (7.3% gross yield). The tenant has traded for 25 years with strong financial covenants.

Commercial term loan: £385,000 (70% LTV). Interest rate: 3.0% above base rate (7.5% total at current base rate). Term: 15 years, interest-only for 5 years then capital-and-interest. Monthly interest-only payment: £2,406. Rental income: £3,333 per month. Interest coverage ratio: 138%. Arrangement fee: 1% (£3,850). Valuation: £2,500. Legal fees: £4,500. Total acquisition cost: £560,850. Investor’s equity: £175,850.

Annual net income after mortgage payments: £11,127 (8.9% cash-on-cash return on equity). After 5 years, the property value has increased to £620,000 and the rent reviews to £46,000. The investor refinances at 65% LTV (£403,000), releasing £18,000 of equity while maintaining comfortable income coverage.

Frequently Asked Questions

What is the difference between commercial term finance and a commercial mortgage?

In practice, the terms are used interchangeably. A commercial mortgage is a type of commercial term loan secured against commercial property. The distinction, where one exists, is that “term finance” can include non-property-secured business lending, while “commercial mortgage” specifically refers to property-secured lending.

How long does a commercial term loan take to arrange?

4-8 weeks for straightforward cases. Complex transactions (multi-property portfolios, hospitality, care homes, SIPP/SSAS) may take 8-12 weeks. For time-critical purchases, commercial bridging can complete in 10-14 days as a short-term solution pending the term loan.

Can I repay early?

Yes, but early repayment charges (ERCs) may apply, particularly during any fixed rate period. ERCs typically range from 1-5% of the outstanding balance and decrease over the fixed period. Variable rate products often have lower or no ERCs.

Do I need a deposit?

Yes — typically 25-40% of the property value. Most lenders offer 60-75% LTV for commercial term loans. Additional security (other properties, personal guarantees) may improve the LTV available.

Can start-ups get commercial term finance?

Yes, but criteria are tighter. Start-ups typically need a larger deposit (35-50%), a detailed business plan with financial projections, and may need to provide additional security. Specialist lenders actively support start-up acquisitions in sectors like hospitality, healthcare, and retail.

Is interest on a commercial mortgage tax-deductible?

Yes — mortgage interest on commercial property is fully deductible as a business expense for corporation tax or income tax purposes. This applies to both owner-occupied and investment commercial mortgages. Unlike residential buy-to-let (where Section 24 restricts interest deductibility), commercial property interest remains fully deductible.

Does Platinum Global charge a fee?

No broker fee on facilities of £500,000 or above.

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Contact Platinum Global Bridging Finance at 64 Knightsbridge, London or Railway House, Manchester for indicative terms within 24 hours. No broker fee on facilities of £500,000 or above.

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Platinum Global Bridging Finance is a distinguished high-net-worth finance broker. We specialize in providing tailored financial solutions, including Property Bridging Finance, Development Finance, Single Stock Loans, Margin Stock Loan, Crypto Finance, Crypto Backed Loans and Commercial Property Finance tailored to meet the diverse needs of our clientele seeking robust financial lending solutions.

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Commercial Term Finance Gerard Ward 9 November 2019

Commercial Term Finance