If you own a business, whether large or small, you may have already applied for a commercial mortgage. If not, you know that you are very likely to need one at some stage. Commercial mortgages can be used for such purposes as new premises, new equipment or business expansion.
The first time you apply for a commercial mortgage, you may well feel nervous about your prospects of success, especially in the current financial climate. Obviously, at the moment there is less money available. But there are still lenders around who will lend money to the right customers.
So how can you ensure that you have the best possible chance of finding the finance you need?
1. If you are looking for your commercial mortgage to purchase property for your business, make sure the property is suitable for the required purpose. Of course this depends on what your business is – retail, hotel, holiday let, factory etc. The lender will check this and will also look at location, available space, and whether planning permission has been obtained, or is likely to be.
2. Whether commercial mortgages are needed to purchase property to use for your business, or to use for some other purpose such as expanding your business or raising additional capital, lenders will need to know what the mortgage is to be secured on. If it is to purchase property, it will probably need to be secured on the property itself and the lender will need to ascertain that its value is sufficient. If it is for other reasons, the lender will probably expect it to be secured on the property used by the business, provided that there is sufficient equity. If not, or if the business is renting the premises, you may find it difficult to obtain a mortgage unless you are willing to mortgage or remortgage your private residence.
3. Remember that there are many specialist lenders in the market for commercial mortgages, and different lenders deal with different commercial sectors. Make sure you approach the most suitable lender for your type of business, to maximise your chances of success.
4. To succeed in obtaining a commercial mortgage, it does help to have good credit, especially in the current climate. However, lenders are aware that in business there are many things that can impair your credit through no fault of your own – fluctuating income, cash-flow problems caused by late paying customers, or simply being a newcomer. The lender will discuss the situation with you and may be sympathetic if your qualifications are good in other respects.
5. Make sure your documentation is in order – that your accounts are up to date and have been audited, and all records are kept in good order. These will be checked by the lender, and you need to appear well organised!
6. Probably the most important single thing you can do to ensure success in obtaining a commercial mortgage is to find a good commercial mortgage broker who has access to the whole market. If you go to the bank, you will be limited to the bank’s own products. The broker can help you find the most suitable mortgage for your type of business, including finding specialist lenders, and can advise you on how to tailor your application to maximise your chances of acceptance.
There’s no doubt that it’s harder to get hold of commercial mortgages than it was this time last year. But there are still lenders who need your business in order to survive, even if there’s less money to go round. It’s the businesses who submit the best applications, and who work hard to make sure everything is in place, who have the best chance of getting hold of what money there is. So follow these steps and make sure you are one of them.