In a nutshell: Most UK businesses need a deposit of 20-40% for a commercial mortgage, but the exact amount depends on your trading history, property type and lender. If you’re early in your business journey, there are still options that could help you bridge the gap, such as bridging loans or asset finance.
If you’re thinking about purchasing commercial property for your business, the deposit is probably top of your considerations. It’s a big chunk of cash to find upfront and the rules aren’t as straightforward as they are for residential mortgages. Fortunately, while most businesses need to put down between 20% and 40%, there are ways to reduce what you pay or even find alternatives if you’re short on funds.
The amount you’ll need to put down depends on things like how long you’ve been trading, the type of property you’re buying and where it’s located. And yes, it can feel overwhelming when you’re just starting out or still growing. But with the right preparation, you can make it work for your business.
In this article, we’ll explain how commercial mortgage deposits work, what influences the amount you’ll pay and how to fund it without stretching your cash flow too thin. We’ll also look at what happens if you don’t have enough saved yet and whether it’s possible to get a mortgage with no deposit at all.
What is a commercial mortgage deposit?
A commercial mortgage deposit is the upfront payment you make when buying a property for your business. Unlike residential mortgages, where you might put down as little as 5%, commercial lenders usually ask for much more – typically between 20% and 40% of the property’s value. This is because commercial properties are seen as a higher risk. If your business hits a rough patch, the lender wants to know they can still recover their money.
The deposit is part of what determines your loan-to-value (LTV) ratio. For example, if you put down a 25% deposit, you’re borrowing 75% of the property’s value. The higher your deposit, the lower your LTV, which usually means more competitive interest rates and a higher chance of approval. But, if you’re a newer business or buying a riskier type of property, lenders might ask for more to offset that risk.
It’s also worth knowing that commercial mortgages work differently from residential ones. The terms are usually shorter (often 10-30 years) and lenders will look closely at your business finances, not just your personal credit score. That can feel like a lot of pressure, especially if you’re still building up your trading history or revenue. But understanding how it all works puts you in a much stronger position to negotiate.
How much deposit do you need for a commercial mortgage?
The deposit you’ll need depends on a few main factors. Here’s a rough guide to what you can expect:
Start ups and very new businesses: If you’ve been trading for less than two years, you’ll usually need to put down 30-35% or more. This is because lenders see you as higher risk without a long trading history or stable cash flow
Established businesses: If you’ve been trading for over two years and have revenue between £50-500k, you’ll typically need 25-30% for an owner-occupied property, like an office or shop you’ll use yourself
Larger businesses: If your revenue is over £500k, you might qualify for deposits as low as 20-25%, particularly if you’ve got strong financials and a good credit record
Investment properties: If you’re investing in buy-to-let commercial spaces, you might need around 30-35%, as lenders see them as riskier than owner-occupied properties
Specialist properties: If you’re buying a pub, care home, petrol station, or other specialist property, you might need around 35-40% because they’re harder to resell if things go wrong
Your business credit score can influence the deposit amount a lender asks for. Poor credit doesn’t necessarily mean you’ll be rejected, but it could mean you’ll need to put down more (sometimes an extra 5-10%) or pay a higher interest rate. For more information, read our guide to getting a business loan with bad credit.
Location also impacts the deposit amount you’ll need. For example, if you’re buying in London or the South East, you might need to budget an extra 5-10% compared to other parts of the UK. This is simply because property values are higher and lenders are more cautious.
How you plan to use the property matters too. If you’re buying it to live in or run your business from, you’ll usually get better terms than if you’re buying it as an investment. Lenders see owner-occupied properties as less risky because you’re more likely to keep up with payments if your business depends on it.
If you’re buying property through a limited company, lenders will usually expect a higher deposit than for personal purchases – typically around 25-40% depending on your company’s trading history, profitability, and credit profile. This is because limited companies are considered separate legal entities and lenders often view them as carrying greater risk, especially if the company is newly incorporated or relies on directors’ guarantees.
If you’re not sure where you fit, Tide’s Business Loan Calculator can provide a quick estimate of what you might need to save. It’s a good starting point before you speak to a lender or broker.
How your commercial mortgage deposit could affect interest rates and costs
The size of your deposit doesn’t just determine whether you get approved – it also affects how much you’ll pay in the long run. A bigger deposit usually means a lower interest rate, which could save you thousands over the lifetime of your business mortgage.
For example, if you put down 25% instead of 20%, you might qualify for an interest rate that’s 0.5-1.5% lower. That might not sound like much, but on a £500,000 property, it could mean saving £10,000 or more in interest over five years. It’s worth analysing the numbers to see how much extra you can afford to put down.
In comparison, a smaller deposit means higher monthly payments and more interest over time. It also means you’re more likely to face stricter terms, like a shorter repayment period or higher fees. If you’re already stretched thin, this could put even more pressure on your cash flow.
But don’t panic if you can’t afford a huge deposit right now. There are ways to improve your position, like building your credit score or choosing a less risky property. Even small changes can make a big difference to what lenders are willing to offer.
Where to get the money for your commercial mortgage deposit
Most businesses don’t have tens of thousands of pounds sitting in the bank, ready to use as a deposit. If you’re in this position, you could consider using alternative funding and other forms of property finance to cover the deposit.
Bridging loans: A short-term solution to help you buy a property quickly, even if you haven’t sold your current one yet. They’re fast to arrange but come with high interest rates (usually 10-18% APR) so they’re best used as a last resort or for very short periods
Asset based lending: Use unpaid invoices, inventory, or other business assets as collateral to secure funding for your deposit. Interest rates vary but can be competitive and you can spread the cost over a manageable period
External investment: If you’ve got investors, family, or friends who believe in your business, they might be willing to lend you the money. Just make sure any agreements are structured properly so lenders don’t have issues with the source of your deposit
Savings or working capital: If you’ve been setting aside profits or have a healthy cash reserve, this is the simplest option. It avoids extra debt, but be careful not to leave your business short on operating funds. If you’re building up savings, Tide’s Instant Saver account lets you earn interest on your deposits while keeping your money easily accessible
Seller negotiations: In some cases, sellers may accept a deferred deposit (where you pay part of it later) or offer vendor financing (where they act as the lender for part of the purchase). It’s not common, but it’s worth asking if you’re in a strong negotiating position
Remortgaging existing property: If you already own a home or another commercial property, you could release equity by remortgaging and use the funds for your deposit
With so many options available, you may not feel sure which option is best for your situation. Consider speaking with a broker who can help you weigh the pros and cons, and advise which lenders are more open to alternative funding sources.
What if you have a low business mortgage deposit?
If you don’t have enough saved for the deposit you need, don’t assume you’re out of options. There are still ways to make it work.
First, talk to a broker. They know which lenders are more flexible and might be able to find you a deal that requires a slightly lower deposit. Some lenders will also consider personal guarantees or additional collateral – such as another property or high-value equipment – to reduce their risk.
If your credit history’s holding you back, see if you can improve your business credit score. Paying bills on time, reducing debt and fixing any errors on your credit report can all help. It usually takes 9-18 months to see a real difference, but it could be worth the effort if it means you’ll qualify for better terms.
You could also look at 100% commercial mortgages, although these are rare. They usually require you to put up other assets as security, like another property or a high-value piece of equipment. The terms aren’t always great, but they can be a lifeline if you really want to buy.
And if all else fails, consider whether buying is really the right move for your business right now. Leasing or renting might give you the space you need without the upfront cost. It may not be ideal if you’re set on owning, but it could be better than stretching yourself too thin and putting your business at risk.
Can you get a commercial mortgage with no deposit?
The short answer is: yes, but it’s very rare. Most lenders will want you to put down at least some of your own money. But there are a couple of ways to get close to a no-deposit mortgage.
Use equity in another property: If you already own a home or another commercial property, you might be able to remortgage it and use the money as your deposit. This is called a second charge mortgage and it lets you borrow against the value you’ve already built up
Offer high-value assets as security: This could be anything from machinery to intellectual property, depending on the lender. The downside is that you risk losing those assets if you can’t keep up with your payments
Just remember that any deal that lets you avoid a deposit will probably come with higher interest rates or stricter terms. Make sure you’ve carefully considered the numbers and can afford the repayments before you commit.
Wrapping up
A commercial mortgage can help propel your business forward. But finding the money to put down the deposit can feel like a huge burden when you’re still growing your business. Thankfully, there are ways to make it work with the right preparation.
You can start by figuring out how much you’ll realistically need to save. Use Tide’s Business Loan Calculator to get an idea of what you need, then explore your funding options. If you’re early on in your business journey, you may want to focus on building your credit and trading history to improve your chances.
If you want more information before getting started, Tide’s commercial mortgage guide has everything you need to know about the process, from eligibility to application.
FAQs
How much deposit do I need for a commercial mortgage if I’m a start up?
Start ups usually need to put down 30-35% or more, depending on the property and lender.
Can I use a business credit card for my deposit?
Most lenders won’t accept credit cards as a deposit source. Instead, you could consider asset finance or a bridging loan if you need short-term funding.
Do fintech lenders offer lower deposits than banks?
Sometimes, but the difference is usually less than 5%. However, fintechs might be more flexible with collateral or personal guarantees.
How long does it take to improve my credit for a better deposit rate?
It typically takes 9-18 months of positive trading and credit behaviour to see a real improvement in your score.
Are deposits higher in London?
Yes, you’ll usually need to budget 5-10% more for a deposit in London or the South East compared to other regions.
What’s the minimum deposit for a commercial property portfolio?
Portfolios usually require 25-30% or more, depending on how diverse and stable the properties are.
Can I get a commercial mortgage with bad credit?
It’s possible, but you’ll likely need a bigger deposit – sometimes 5-10% more. And you may face higher interest rates. Focus on improving your credit before you apply.
Photo by Point3D Commercial Imaging Ltd. on Unsplash
