Commercial mortgages and lenders
Overview of a commercial mortgage
You may need to take out a commercial mortgage to buy premises to start or expand your business, or if you are buying a business that is directly linked to property eg a hotel or retail outlet. Mortgages usually last for 15 years or more and the property itself will be at risk if payments are not made on time.
Meeting the lender's criteria
Most banks and building societies offer commercial mortgages, but you must satisfy their criteria. Most lenders require a positive personal credit rating and clear evidence that your business is creditworthy, although some lenders may accept applications where there is an adverse credit history.
Most lenders will apply a loan-to-value ratio and will expect you to invest a proportion of your own money in the purchase. The more you are willing to invest of your own money, the greater the chance you will have of securing a loan for the remainder.
The loan-to-value ratio is the loan amount divided by the current market value of the property expressed as a percentage. If a property has a current value of £200,000 and a loan is required for £150,000, the loan-to-value ratio is 75 per cent.
The lender's decision will also depend on your current business circumstances - a commercial lender will expect your business to be stable and profitable. They may ask to see your business plan and long-term financial projections, to assure themselves that your business has, and will continue to have, the ability to make repayments on the loan.
Some lenders may impose restrictions on the uses of commercial premises. You will need to consider carefully all the terms of any lending agreement, particularly as the loan period may be for 15 years or more. This is a complex area and it's essential that you seek specialist advice from your solicitor.