Commercial Mortgages - The Facts
Here we will discuss the current appetite of the UK's financial institutions for Commercial Lending. We will also introduce some ideas and tips to make sure that you maximise your businesses opportunity in terms of securing financing.
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A Commercial mortgages is a financing arrangement for property for a trading or commercial entity.
This article is aimed at trading businesses, which want to get a grasp on which factors are important in terms of ensuring that you get the best possible deal for your commercial mortgage.
The purpose of this article is to describe some of the common issues which companies can have when applying for a commercial mortgage. Also, we will discuss some of the things which the lenders will require to progress your finance application. The whole financial landscape has significantly changed over the past 2-3 years, with the financial meltdown, which has been well documented, leading to a real lack of confidence from the financial institutions. As such, this has meant a reluctance to lend money to trading businesses, unless they are absolutely bulletproof. From a companies perspective, this means that you really have to make sure that everything is in order prior to making an application for a commercial mortgage, and presenting your business in the best possible light.
There are several key areas which a financial institution will consider when lending money to a business. These are typcially: The businesses previous performance (i.e. The financials), the skill set and experience of the business owners. The logic behind the proposed purchase of the premises. The proposed level of borrowing. Finally, the security which is available. Typically the lender will put together a credit proposal, which they will need to present to their internal credit committee which will then in turn decide whether or not the proposal meets their criteria. Some lenders may have too much exposure to your sector and possibly commercial property, and therefore may not want to progress the application.
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It is extremely important that you make sure that you speak to several banks, even just to use the alternatives as reference points in terms of the rates which are available. Also your existing bank, may not necessarily offer the best rate. Quite often a new bank will be more keen to write the business and as such will offer more competitive terms.
A commercial mortgages broker can be a useful way of covering the market, as they will have a good understanding of the appetite of the various financial institutions. Whilst we have come out of the other side of the global financial meltdown, and the subsequent recession, most lenders are still being cautious. This means from a commercial mortgage perspective that the lenders will look at reduced loan to values (LTV), i.e. The amount of money which they will lend against the value of the property. In addition, there will be significant scruitiny of your company and the business which you are transacting, including reliance on any one key client, and a whole host of other areas. It is often worth considering putting
together a business plan prior to engaging with the lenders, and there are lots of different templates which are available.
Remember the banks primarily make money from lending, so if they can they will try and lend money. Their job is to analyse risk, and make sure that your business
will be able to meet the proposed repayment schedule.
You need to make sure that your business is presented in the best possible manner. Spend time, and possibly money making sure that this is the case. Be prepared
for lots of questions around the LTV, the covenants, the security, your business trading record. A commercial mortgage can often make real financial sense
for a business and can be the right decision for the business, the job of yourself and your broker, will be to express this in a concise and coherent manner.
Finally, good luck!
If you wish to arrange a no obligation conversation with us in relation to providing a commercial mortgage brokering service, please either contact us using the contact form provided, or alternatively visit: www.commercial-mortgages-broker.co.uk, or by telephone: 020 3384 6159.
