Unlike residential mortgages, commercial mortgages tend to work on the borrower’s unique status, track record and experience within their business market or the property rental market if the property is for investment. Lenders and underwriters therefore are more likely to favour existing landlords but they will look at each application on a case-by-case basis and provided the financials stack up most will accommodate applications from new landlords. There are several options when applying for a commercial mortgage, some borrowers choose to go direct, but most opt to use a commercial mortgage specialist like Lumi Bridging Solutions who have experience within the property market funding and understand the complexities of commercial lending and the need to source the appropriate funding to suit the objectives and individual needs of each landlord and their specific purchase or project.

It often makes good financial sense to buy rather than rent a property as ownership gives the business more control over their premises and avoid additional management fees and rent increases. However, general upkeep and maintenance is a variable cost for which the business owners should consider as they will be liable for these additional expenses as landlord.

In most cases property values increases over time so there is a financial benefit in addition to the saving on rental expenditure. Although ownership is a long-term commitment it can also provide an option to rent part or all of the premises in the future to generate additional income. Although this may require lender approval and amendments to the original terms and conditions of the commercial mortgage agreement or conversion to a ‘Buy to Let’ mortgage, ownership can provide additional business opportunities and options to a landlord or owner.

A commercial mortgage is generally classed as an unregulated facility for business users or for any type of business activity or investment. They are based on the strength of a business financially, the individuals involved in the business and the value of the property or asset being acquired. Commercial lenders will want to the business to demonstrate consistency and a trading track record within the business’s marketplace together with decent profits in the company’s management and filed accounts to show commercial affordability to make monthly repayments. Commercial mortgage interest is higher than a residential mortgage as the facility presents greater financial exposure to the lender and is dependent on the performance and long-term viability of the business.

Interest is however usually lower when compared to a standard business loan. Commercial mortgages are generally higher in value as commercial property is usually bigger than residential and as the risk is greater to the lender they require a larger deposit from the applicant business or owner, this is generally a minimum of 30% of the purchase price or lenders valuation.

A residential mortgage on the other hand is a regulated facility used for private property purchases that is likely to be your main residence and is based on the individual’s income, outgoings and affordability to make monthly repayments in addition to the value and condition of property. Interest rates are lower than a commercial mortgage and the rate of interest is based on the deposit which is normally between 10-20% of the property value and the applicant’s personal financial circumstances and credit history.

By using Lumi Bridging Solutions to apply for a commercial mortgage you gain our experience of the commercial lending market and knowledge of which lender will be the most suitable or appropriate to meet the needs of your business. Commercial lending can be complex and often subject to the type of business or circumstance and dependent on several factors that are lender criteria specific. Lumi Bridging Solutions can select lenders most suited to your business with a full disclosure of the current options open to your business and help guide business owners through in the application process to save time. We will also be able to advise applicants of lending options and ensure time is not lost during the application process and that all information is collated correctly prior to being submitted. Applicants will also enjoy updates on the application which is important when working to a timescale to complete a project or purchase funding.

Prior to applying for a commercial mortgage, applicants should look to complete a business forecast, factoring in costs from all aspects of the business which could include personal costs. These factors involve whether the maintenance of regular monthly repayments can be comfortably met, whether there are other loan repayments outside the commercial mortgage to be taken into consideration and how collectively these may affect cashflow or long-term financial commitments or targets. Applicants should note, they risk damaging their credit ratings if they are unable to meet monthly commitments and the lender can exercise the right to repossess the property if the borrower falls into default.

Higher rates of interest may apply to applicants with a poor credit rating, so checking your rating is always good practice before applying for any form of lending. An application made by a new business with a strong credit and trading history may still be viewed as high-risk when comparisons are made against an existing business. The result could mean lenders request personal guarantees or security against any borrowing.

Lenders carry out similar checks made by residential mortgage lenders, which include affordability and the financial health of the business. This is likely to include a full business credit check and examination of the company’s filed accounts to see how a company is performing and managing any financial commitments that include debt or other financially connected issues.

Lenders may need to see the profitability of the business, so will request a minimum of 3 months business bank account statements. Other information will require proof of identity; 3 years full residential address history and any lease or tenancy agreements. Applicants should look to prepare for the provision of a business forecast, demonstrating viable financial plans.

Application sequence for a commercial mortgage:

• Speak to one of the Lumi Bridging Solutions team, outline the business activity and explain the need and purpose of the commercial mortgage so we can get a snapshot of the business and circumstances surrounding the trading activity of the business.
• Supply key information about the business in an email.
• Complete a commercial mortgage application.
• Supply all supporting documentation requested by Lumi or the lender.
• Obtain provisional Heads of Terms from lender
• Provide any formal valuation of the property from a recognised (RICs) valuer if available.
• Wait for lender to carry out their due-diligence and initial underwriting process including legal checks and complete any necessary paperwork.
• Get a formal offer from a lender, once approved.

When applying for a commercial mortgage, an applicant should prepare for the following fees.

• Arrangement or administrative fees – A charged made by the lender for the loan provision.
• Lumi Bridging Solutions as a brokerage have no up-front brokerage fees; however we charge a fee for our services in arranging a loan or any finance facility.
• Surveyors or Valuation Fees – A Royal Institution of Chartered Surveyors valuation (RICs) is usually required.
• Legal Fees – Solicitors fees.

Please note the addition of fees onto any type of mortgage, instead of paying initially will be more expensive as interest is charged on the amount added.

Commercial mortgages usually need a deposit between 30-40%.
Residential mortgages vary between 5–20% of the property’s value. A borrower may look to secure a separate loan to cover the deposit; however this will be taken into account by lenders when conducting affordability checks.