How to Finance an Industrial Unit Without Crying Into Your Cash Flow Forecast
- Anu
- Aug 29, 2025
- 5 min read
Industrial units: the unsung heroes of the economy. They’re not glamorous. They don’t have bay windows or walk-in wardrobes. But they do house the businesses that keep the country ticking—logistics firms, manufacturers, mechanics, and the occasional indoor trampoline park.
If you’re thinking of buying one, whether for your own business or as an investment, you’ll likely need a commercial mortgage.
And while the concept is simple—borrow money, buy building—the reality is a bit more nuanced. So let’s unpack it, without the jargon, and with only mild sarcasm.
What Is a Commercial Mortgage (and Why Should You Care)?
A commercial mortgage is a loan secured against a property that’s used for business purposes. Unlike residential mortgages, which are obsessed with your personal income and whether you’ve ever missed a credit card payment in 2009, commercial mortgages focus more on the property itself and the business behind it.
You can use a commercial mortgage to:
Buy an industrial unit for your own business
Purchase one as an investment (to rent out)
Refinance an existing loan
Release equity for expansion, refurbishment, or just to feel financially powerful
Types of Industrial Units You Can Finance
Before we dive into the money bit, let’s look at the types of industrial units lenders will consider:
1. Light Industrial Units
Think small-scale manufacturing, assembly, or storage. These are usually located on business parks and are relatively straightforward to finance—unless they come with asbestos or a mysterious smell.
2. Warehouses
From Amazon-scale distribution centres to modest storage units, warehouses are popular with investors. Lenders like them too, especially if they’re let to a strong tenant on a long lease.
3. Workshops and Trade Counters
Often used by mechanics, plumbers, or builders. These can be trickier to finance if they’re owner-occupied and the business is new or niche (e.g. bespoke taxidermy).
4. Mixed-Use Units
Some industrial units come with office space or retail frontage. These can be attractive to lenders, but they’ll want to understand the split of usage and how it affects valuation.
Can You Actually Get a Mortgage? Let’s Find Out
Here’s what lenders will look at when deciding whether to hand over a six-figure sum:
1. The Property
Location: Is it in a thriving industrial area or a forgotten corner of the A-road network?
Condition: Is it structurally sound, or does it look like it’s been through a mild apocalypse?
Tenant Profile: If it’s let, who’s renting it? A national logistics firm is better than “Dave’s Discount Carpets.”
2. Your Profile
Business Strength: If you’re buying for your own use, lenders will want to see trading history, profit, and cash flow. If your accounts are printed on napkins, this may be a problem.
Investment Experience: If you’re buying to let, lenders will ask about your property portfolio. First-time investors can still get funding, but expect more scrutiny.
Credit History: Yes, they’ll check. No, they won’t be impressed by your “creative” approach to paying bills.
3. Loan-to-Value (LTV)
Most lenders will offer up to 70–75% LTV. That means you’ll need a deposit of 25–30%. If you’re hoping to buy with £500 and a dream, you may need to rethink.
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How Much Can You Borrow?
This depends on:
The value of the property
Your deposit
Your income or rental yield
The lender’s mood
Let’s say you’re buying a £500,000 warehouse. With a 70% LTV, you could borrow £350,000. You’ll need to stump up the remaining £150,000 plus fees, taxes, and possibly a new boiler. Sometimes you get scrape a bit more, perhaps 75% LTV.
Interest Rates and Terms
Commercial mortgage rates vary wildly. They depend on:
The lender
The risk profile
The property type
Your financials
Expect rates from 6% to 8% (or higher if the lender suspects you might be a flight risk). Terms typically range from 5 to 25 years. Shorter terms mean higher monthly payments but less interest overall. Longer terms are easier on cash flow but cost more in the long run—like buying a sofa on finance and still paying for it when it’s threadbare.
Fees to Watch Out For
Because nothing in finance is ever simple, here’s a list of fees you may encounter:
Arrangement Fee: Usually 1–2% of the loan amount
Valuation Fee: To confirm the property isn’t made of cardboard
Legal Fees: Yours and the lender’s (yes, you pay both)
Broker Fee: If you use one (which you probably should)
Early Repayment Charges: If you pay off the loan early and the lender feels betrayed
Raising Finance: What Are Your Options?
If you don’t have the full deposit or want to explore alternatives, here are a few routes:
1. Commercial Mortgage
The classic option. Best for long-term ownership and stability.
2. Bridging Loan
Short-term finance, useful if you’re buying at auction or need to move fast. Higher rates, but flexible and quick.
3. Development Finance
If you’re buying a unit to refurbish or convert, development finance might be more suitable. Lenders will fund the purchase and the works, but expect detailed plans and a robust exit strategy.
4. Asset Finance
If your business has valuable equipment, you might be able to leverage it to raise funds. Just don’t offer your espresso machine unless it’s gold-plated.
5. Private Investors or JV Partners
If you’ve got the expertise but not the cash, consider partnering with an investor. Just make sure the agreement is clear, legal, and doesn’t end in a passive-aggressive WhatsApp group.
Common Pitfalls to Avoid
1. Overestimating Rental Income
Just because the unit could rent for £50,000 a year doesn’t mean it will. Check local comparables and speak to agents.
2. Ignoring the Condition
Industrial units can hide all sorts of issues—roof leaks, asbestos, dodgy electrics. Get a proper survey. Not just a mate who once built a shed.
3. Underestimating Costs
Stamp duty, legal fees, repairs, insurance—it all adds up. Create a spreadsheet. Then cry into it.
4. Choosing the Wrong Lender
Not all lenders are created equal. Some love industrial units. Others treat them like radioactive waste. Use a broker who knows the market.
5. Not Having an Exit Strategy
If you’re using short-term finance, make sure you know how you’ll repay it. “Hope” is not a strategy.
Is It Worth It?
Industrial units can be a solid investment. They offer:
Strong yields
Long-term tenants
Lower maintenance than residential property
Increasing demand thanks to e-commerce and logistics growth
But they’re not without risk. Vacancy periods can be long. Repairs can be costly. And if your tenant goes bust, you’re left with an empty shell and a monthly mortgage payment.
Final Thoughts
Securing a commercial mortgage for an industrial unit is entirely doable—if you’re prepared. Lenders want to see a viable property, a sensible plan, and a borrower who isn’t winging it.
So:
Do your research
Get your finances in order
Use a broker
Read the small print
And don’t buy a unit just because it has “good vibes”
Industrial property might not be glamorous, but it’s the backbone of the economy. And with the right finance, it could be the backbone of your portfolio too.
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