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Sunday, 21 September 2014

Tips when applying for a commercial mortgage

THE number of lenders providing commercial mortgages has decreased over the past five years.

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Joanne Atkinson, Cumberland Building Society

However, it is still possible to secure a commercial mortgage with lenders looking for low risk, good quality loans, from applicants who are able demonstrate they have the skills to be successful and can comfortably service the borrowing.

Lenders will typically provide loans of up to 60 per cent of the market value of the business premises.

In addition to the deposit, purchasers will be required to budget for set-up costs, including the lender’s arrangement fee, valuation and solicitor’s fees, including Stamp Duty Land Tax.

Lenders will typically lend on freehold or long leasehold premises. Interest rates and the term of the loan will vary according to the proposition and will reflect the lender’s assessment of the risk.

The lender will also take into account the income being generated against loan commitments and the deposit made.

When approaching a lender for a loan, it is important that you are prepared and that you are able to clearly put forward what you are looking to purchase, what loan you require and the income that will be available to service the loan.

It is important that purchasers produce a solid business plan describing the business premises, the short / medium / long term objectives of the business, marketing and advertising plans and the last three years’ accounts / income figures together with financial projections with the assumptions used.

You will also need to be able to demonstrate how your business can deal with unexpected shocks and how resilient it is to such events.

It is also important, especially if approaching a lender who has no knowledge of you, to produce a detailed CV to show your background, skills and experience relevant to the business.

The business plan should also include your current financial position showing a detailed asset and liability statement, details of all existing properties and savings together with all loans outstanding.

The business plan should be looked on as an opportunity to show the lender that you have thoroughly researched, considered and understand the venture and that you will be a good prospect to lend money to.

In summary, there are lenders still providing commercial mortgages. However, lenders will generally now require a much larger deposit than in previous years and purchasers must clearly demonstrate that they have the necessary business skills to be successful in the venture.

Lenders want to ensure that the proposed loan can be serviced now and also in the future by considering the ‘what if’ factors.

The Cumberland Building Society has an experienced business team who offer commercial mortgages, business current accounts and business savings accounts.

Your property may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it.

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