If you are wondering how to get a commercial mortgage, this blog will give you a few ideas, options and pointers to think about! The obvious first step is to speak to your bank. The alternative is to speak to a commercial mortgage broker like us, but read on to to find out which might be best for you!
The first step for a commercial mortgage
You need to think about what type of finance you need. For example you might need a bridging loan if you are looking for short term funding or a commercial term product if you are looking to buy commercial premises.
Of course the bank or a commercial mortgage broker will be able to guide you. However by only speaking to a bank you will only have access to their products and criteria, Click To Tweet but either way they should be able to give an indication early on if they can help with whatever commercial project you are looking to do.
Advantages of using a Commercial mortgage broker:
A commercial mortgage broker will look at the market to find the best lender for you whether that is a high street lender, off high street lender (not one of the big 5 banks), commercial banks, private lenders, peer-to-peer or even JV (joint venture) options. A good commercial mortgage broker will be looking at every angle and option to try and help you.
But remember a good commercial mortgage broker will:
- Want to help you and not treat you like another number.
- Want to get a thorough understanding of your business in order to help you.
- Will be able to find the right lender and make sure the deal can go through successfully. A good broker will know all the lenders criteria and who is likely to say yes!
Advantages and disadvantage of using a broker:
You will have to pay a fee for this service.This might be a deal breaker for some, but for others it is a life line when a bank says “no”.
Of course the advantage for you doing the hard work is you could save yourself a fee. Click To Tweet If you have a good relationship with your existing bank, the process might be easy as the bank should know you. If you also have your business banking with them, this will also help as they will know how your business is performing.
Of course the major disadvantage of speaking to your bank and no one else is, you might be able to get a better deal elsewhere. And any fee you pay to a broker could be tiny in comparison to the savings made by getting the right deal. The question is do you need help?
There are different requirements for different types of business (this is a general guide and is subject to change):
Existing business looking to re-finance or borrow more:
- at least 2 years good set of accounts
- business plan
- forecasts for the plan
- possible exit strategy for short term borrowing.
Think about the commercial strategy!
- The strategy you are going to employ (will the business purely support the borrowing, any relevant planning consent issues, what contingency funds do you have, are there any other assets you can put into the deal, most banks would want a high injection cash. The banks want to see the borrower putting their own money into the deal and not just borrowing it. Click To Tweet
New commercial business:
- You will have to rely much more on projections
- You will need a good business plan
- evidence of cash input
- experience in sector
- serviceability of the debt is hugely important (will the net income service the debt at the banks stress levels which can be anything from 5-7% and up to 1.5x at this level).
- A sector the bank likes – certain banks prefer different industries to others. For example certain banks don’t like development projects but may like renewable’s this of course is always subject to change and different clients may be more likely to get certain types of finance.
- Pubs are difficult but not impossible.
- Area is a key driving force in the sector too. So a lender in one area might be okay with a certain sector, but in another area they wouldn’t like the proposition.
- The size of your deposit is also crucial.
- the high street lenders will lend part on land and part on build costs.
- Evidence of previous success and experience is important.
- On average 50% LTV is available with the high street lenders, but again this can change depending on the project, experience and the overall proposition.
- the alternative is to look at a non high street lenders where you can get in the region of 70% LTV on land and 100% on build costs.
- Joint Venture opportunities can achieve 100% funding for the developer. An experienced developer with planning can team up with a private financier who can provide 100% funding and the profits are split at the end.
Awkward and unusual commercial scenarios:
- If you haven’t got a set of trading accounts
- You are taking on a business that has failed
- Or taking on a business that is not trading (old hotel).
Provided the asset value is there and less than 70% LTV then their are short term deals which are at slightly higher rates. Once the business is up and running or an exit strategy is established, it can then be re-financed onto a better deal.
I hope you found this little blog helpful and if you have any specific questions you’d like answered please feel free to get in touch. We would love to help.