Getting a Commercial Second Charge Mortgage

For small business owners and semi-professionals, accessing necessary capital can be a challenge. A second charge mortgage offers a solution by allowing you to tap into the equity of your residential or commercial property to secure funding. This guide explains how a second charge can be utilized to support your business needs, whether for expansion, cash flow management, or equipment purchases.

What Is a Commercial Second Charge Mortgage?

A commercial second charge mortgage is a loan taken out against a property that already has an existing mortgage, specifically for commercial or business purposes. This type of mortgage allows businesses to access additional funds by using the equity in their commercial property as collateral. It is typically used for business expansion, refinancing, or covering large expenses. Since it is a second charge, the lender's claim on the property is secondary to the first mortgage.

This means that in the event of default, the primary mortgage gets paid off first from the proceeds of any sale, making the second charge mortgage riskier for the lender and often resulting in higher interest rates. Nonetheless, a commercial second charge can provide businesses with an alternative financing option when they need to leverage the equity in their commercial property.

Benefits of Using a Second Charge for Business Purposes

  • They give you access to capital: a second charge can provide a substantial amount of capital based on the equity in your property, often more than typical business loans or lines of credit
  • They can be cheaper than unsecured loans: since it’s secured against your property, a second charge mortgage often has lower interest rates compared to unsecured business loans
  • They offer flexibility: funds can be used for various business needs, including purchasing equipment, hiring staff, marketing, or even consolidating business debts
  • They allow you to preserve existing mortgage terms: a second charge allows you to retain the terms of your existing mortgage, which might have favourable conditions compared to current market rates

Risks and Considerations for a Second Charge for Business Purposes

  • Additional debt: a second charge will increase your overall debt burden and monthly financial commitments
  • Risk to property: your property is at risk if you fail to make payments, as it serves as collateral for the loan
  • Financial planning: ensure that the potential increase in business income will cover the new debt payments

Ideal Candidates for a Second Charge Business Loan

  • Established business owners such as those who have built up equity in their property and need additional funds to take their business to the next level
  • Semi-professionals like consultants, freelancers, or part-time business operators looking for funding to grow or stabilize their operations
  • Property owners who have significant equity in their property and prefer not to seek traditional business loans

How to Apply for a Second Charge Loan for Your Business

  1. Assess your equity: calculate how much equity you have in your property to determine how much you could potentially borrow. To do this, simply minus the outstanding loan amount from the value of the property
  2. Create a business plan: prepare a detailed business plan that outlines how you intend to use the funds and how the investment will generate income to pay back the loan
  3. Conduct a financial review: understand your current financial position - both personal and business finances. This will be important for the lender’s assessment
  4. Consult a mortgage broker: speak to a mortgage broker like John Charcol who understands commercial finance and can get the right product for your needs
  5. Compare lenders: look for the best terms, rates and fees by comparing offers from various lenders who specialize in second charge commercial mortgages. A mortgage broker can do this for you and discuss the different options available

Get a Second Charge Business Loan

A second charge loan can be a strategic financing tool for small business owners and semi-professionals looking to leverage their property equity. It offers a way to fund business growth and operational needs while maintaining existing mortgage arrangements. 

Contact us today at 0330 433 2927 for personalized advice and to explore the best commercial second charge mortgage options for your business needs.