Commercial Mortgages UK – What do Lenders Look For?
Commercial mortgages in the UK are loans secured on commercial property, such as
office space, retail premises or a factory. You can apply for a commercial
mortgage in order to buy the property, or in order to expand your business.
So how easy is it to obtain commercial mortgages in the UK? Well, first and
foremost, bear in mind that commercial lenders are in business to lend you
money. If they don’t make loans, they don’t have a business. So they are not
looking for reasons NOT to lend you money. But of course they do have to make
sure that you are a reasonably safe prospect – so there are things they need to
look out for.
Initially, the lenders will look for the same things as for an ordinary
residential mortgage – such as your credit rating, your income and the value of
your property, or the property you want to buy. But for commercial mortgages,
there are other factors that are important as well.
- Your business history. You will very likely be asked for your accounts for the
last three years, including your profit-and-loss account and your balance sheet.
These accounts need to be certified as true by an accountant.
- Viability of your business. You will also probably be asked to submit a
business plan. The lenders will compare your business information against the
average for businesses in your particular field.
- Cash flow. The lenders will want to see your cash flow over the past three
years, and your cash flow forecast. This is mainly to determine the LTV
(loan-to-value) amount they will lend you. A typical LTV for a commercial
mortgage is about 75%, but the actual amount will depend on their assessment of
the value of your business.
- Personal financial information. You and any co-borrowers will be expected to
provide personal financial statements showing your net worth. This also needs to
be certified by an accountant.
- Suitability of the property. If the loan is to purchase a commercial property, the lenders will need to ascertain that it is suitable for the intended purpose – in size, location, nature of the building etc. – and that you have obtained, or are likely to obtain, planning permission.
If any individual aspect of your personal or business information gives rise to
concern, but the overall picture is satisfactory, you will probably still be
offered a commercial mortgage, but at a slightly higher rate.
Bear in mind that the reason why the lenders work hard to establish your
suitability at the outset is that they want at all costs to avoid the prospect
of repossession. The last thing they actually want is to be landed with a
business and all its complications. If you are a genuine business person in good
standing, there is no reason why you shouldn’t be offered a commercial mortgage.
Please note that the FSA do not regulate commercial loans or commercial mortgages
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