How do Lenders Calculate Business Mortgage Eligibility?
Every lender will consider applications for mortgages for business purchases on their own merit, and will evaluate the following factors:
- Affordability - whether the business profits demonstrate that the company would be able to keep up with the mortgage monthly repayments.
- Deposit - most lenders offering mortgages for business acquisitions need a deposit of 20-40% for investment mortgages, depending on the risk factor. Owner-occupier mortgages usually require a slightly lower deposit of 20-30%. If you have no deposit, then you may be able to borrow at 100% LTV, but will need to offer another form of security.
- Credit history - if you have a bad credit history, then you will need to apply through a specialist lender who caters to this scenario.
- Trading history - if you have a long track record for at least two to three years of accounts, the business is considered less risky and will have a greater choice between mortgages for business investments.
Eligibility Criteria
To qualify for a business mortgage, applicants need solid sector experience and must show how they plan to repay the loan. This means bringing in documents that prove their ability to pay back what they borrow.
Banks and other lenders look closely at your trading history, making sure your business is healthy and can handle the debt. They also check your credit score to assess risk.
Lenders may ask for personal guarantees if they see you as high-risk. This means you promise to cover the loan if your business cannot pay it back. When applying, you'll need proof of identity and address, along with a detailed account of your finances, including the business premises value and any debts or savings.
Understanding these requirements early helps make the process smoother.
Who Can Get One?
Business owners with strong credit history and financial health can get a commercial mortgage. Banks often look for companies that have been around for at least three years. They check your business accounts to make sure you're doing well.
Some lenders, known as Tier 2 and Tier 3, are more flexible. They might lend to you if your business has only one full year of accounts. If an owner has a not-so-good credit score, they still might get a business loan but with higher interest rates. Lenders need proof like bank statements, tax returns, and details on assets and liabilities.
They also want to know about the property's value on most commercial mortgages and how much deposit you can put down.
How do I apply for a Commercial Mortgage?
The key in finding mortgages for business investments is to apply to the right lenders, where you know you meet most of their eligibility criteria. It can be challenging for businesses to make this decision without having the experience and insight of an expert commercial mortgage broker.
Your broker will help you to put your application for mortgages for business investments together in a favourable way to meet the criteria of your chosen provider.
Are there Alternatives to Finance a Business Investment?
There certainly are - you will find a range of commercial lending products to compare against mortgages for business acquisitions, each of which has its own pros and cons. These include:
- Bridging finance
- Remortgaging
- Unsecured business loans
Bridging Finance to Buy a Business
Bridging loans are quick to organise and often used for company purchases at auction, or where time is critical, rather than mortgages for business acquisitions.
It is vital to have an exit strategy to work out how you will repay the temporary finance when the term ends, usually after one to three years.
Most borrowers using mortgages for business investments either plan to remortgage, or sell the asset, to repay their bridging loan.
Remortgaging to Invest in a Business
Another option, where you have an existing property and own equity, is to consider remortgaging. These mortgages for business acquisitions release the equity you need to purchase a business, although the affordability assessment will apply.
Unsecured Business Loans for Company Investments
Loans are often a good choice if you need to borrow on a shorter-term basis and need £25,000 or less from lenders offering mortgages for business acquisitions. These are usually quicker to arrange and do not require any security but may require valuation fees, arrangement fees, and other outgoings as well.
If you need to borrow a higher value, another option might be more cost-effective.
Are Commercial Mortgages Available to Buy a Residential Property?
Commercial mortgages are not intended for this purpose, so if you'd like to buy a home, you are best applying for a residential mortgage
However, if the property is going to be a business - such as a B&B - then commercial lending is applicable rather than a residential mortgage. If you live in your own business property, your residential space must not account for more than 40% of the total property space to qualify for mortgages for business investments.
In some cases, a semi-commercial mortgage is the most suitable choice, for properties with both a commercial and residential aspect, such as a retail premise with an apartment above.
How Can a Broker Help Me Fund a Business Investment?
The Revolution Brokers team has years of experience in commercial mortgage lending. As a whole-of-market, independent mortgage broker, we can recommend mortgages for business acquisitions from any provider, and any product that we think best suits your circumstances.
