Getting a commercial mortgage with bad credit
Can I get a commercial mortgage with bad credit?
Yes, it is still possible to get a commercial mortgage even if you’ve got adverse information on your credit profile. This is true whether you’ve suffered adverse credit personally, through your business or even both.
That said, depending on your situation, you may find that your choice of lenders is limited due to your credit history. While that can make finding the right lender a little trickier, we’ve been working with lenders across the entire commercial mortgage market since the year 2000, so we’ll usually be able to offer a suitable product.
What types of adverse credit are acceptable?
Commercial mortgage lenders don’t tend to focus on credit score in the same way that residential mortgage lenders do. This means that if your only issue is a lack of credit history, you may still be able to access the best rates.
Common credit issues that we see include defaults, CCJs, repossessions, bankruptcy and previous business liquidations. We’re able to consider applications from borrowers with any of these issues and regularly find solutions for these borrowers.
How do lenders assess bad credit business mortgage applications?
When it comes to credit history, lenders will look at the bigger picture – what the issues were, how they happened and whether they’re likely to happen again in the future.
A common distinction in the market is made between those who can’t pay and those who won’t pay. Borrowers who were unable to pay for some reason, but have since repaid any outstanding funds are will be judged more favourably than those who haven’t repaid what’s owed.
As such, satisfied defaults and CCJs will be seen as less of a problem than unsatisfied ones.
Borrowers with previous business liquidations will usually get a better deal if others didn’t suffer a financial loss as a result of the situation.
Key product features
|Max LTV||Up to 75%|
|Interest rate||From 2.5%|
|Repayment type||Capital repayment, interest only or part and part|
|Interest type||Fixed or variable available|
|Acceptable security||Any commercial or semi-commercial property considered. Land accepted on a case by case basis|
- Loans from £25,000 with no maximum loan size
- Available to individuals, partnerships, LLPs, Ltd companies, offshore companies, foreign nationals and pension funds
- Minimum applicant age 18 years – no maximum age
- Available in England, Scotland, Wales and Northern Ireland
- Adverse credit accepted (on a case by case basis)
- Products with no early repayment charges available
How much can I borrow?
What is the minimum and maximum loan size?
We’re able to offer business mortgages to borrowers with bad credit from £25,000 with no maximum loan size.
What is the maximum loan to value?
Commercial mortgages are available up to a maximum of 75% loan to value (LTV). This means that you’re able to borrow up to 75% of the property value, with the remainder funded through a deposit.
Depending on the amount and type of bad credit that you have, some lenders may restrict the loan to value to reduce their risk. This is usually handled on a case by case basis.
How is affordability calculated?
Each lender has their own method of calculating affordability, although there are common themes between each.
When taking out a commercial mortgage for a property that will be occupied by your own business, the lender will use one of two methods.
The first is using a set level above the annual mortgage repayments that the company’s net profit must reach of exceed. For example, a lender may insist that the profit is at least 145% of the annual mortgage payments.
Alternatively, they may lend a multiple of your net profit – for example 4 or 5 times your annual net profit.
In both situations, the lender will usually allow ‘addbacks’ to be taken into account. These addbacks can include one off costs and repairs, acquisitions and existing mortgage payments that will cease when the new commercial mortgage is taken out.
Acceptable addbacks are then added back into your net profit, increasing the amount you’re able to borrow.
For commercial investment mortgages, affordability is usually calculated as a percentage of the rental income. For example, a lender may insist that the annual rent is a minimum of 145% of the annual mortgage payments.
What rates and fees will I pay?
What interest rate can I expect to pay?
If you’ve suffered some adverse credit, but overall you have a solid credit profile, then you may be able to borrow from a high street lender and access low interest rates. Commercial mortgage rates from high street lenders tend to sit at between 2.5-3.5% per year.
If you fall outside of this due to bad credit, there are a number of lenders who may consider your application. These lenders tend to charge higher rates and may increase rates for higher loan to value applications.
You can usually expect to pay somewhere between 4.5-7% when borrowing from these lenders
How can I reduce the rate that I pay?
The best ways to reduce the rate that you pay are by repaying any unsatisfied adverse credit and by increasing your deposit.
Both of these things reduce the perceived risk to the lender and will usually allow you to access lower commercial mortgage rates.
Are there any other fees to consider?
Yes, on top of the interest charged, you will also encounter a number of fees when taking out a new commercial mortgage. The main ones are as follows:
Lender arrangement fee – this fee is charged by the lender for setting up the loan. It is usually charged when the application process completes (when the lender releases the funds) and is usually between 0.75-2.5% of the total loan amount. In most cases this fee can be added to the loan.
Valuation fee – this fee is charged during the application process and is used to pay a chartered surveyor to undertake a full survey of the security property. Once completed, they will produce a report on the property and provide a valuation of it.
Legal fees – when taking out a commercial mortgage, you are usually responsible for both your own, and the lenders legal expenses. You will be charged fees by both your own and the lenders solicitors to ensure the loan is set up correctly.
How to get a bad credit business mortgage
There is no single correct way to go about this, as the correct approach will depend on your circumstances. We cover the main points below.
Should I use a broker or approach a lender directly?
As a leading commercial mortgage broker, we are pretty biased here, but using a broker is a very good option for borrowers with bad credit.
That’s because it can be difficult to compare commercial mortgage lenders online and to understand their criteria. In many cases, lenders simply don’t publish this information online at all.
In addition, some of the leading commercial mortgage lenders only operate through approved brokers, refusing to deal directly with the public.
This means that by approaching lenders directly, you’re likely to limit your options significantly.
What should I look for in a broker?
The difference between brokers can be vast, not least in the charges that you’ll face for using their service.
Many brokers charge fees for arranging commercial mortgages, often 1-1.5% of the loan amount.
We don’t charge broker fees for loans over £100,000, which can represent big savings for our clients.
How long does it take to get a commercial mortgage?
The process takes a little longer than the residential mortgage application process. Depending on choice of lender, you can usually expect your application to take around 6-12 weeks.
When looking to complete quickly, we may have options available that allow you to do so.
Who can take out commercial mortgages?
We’re able to arrange finance for individual, partnerships, LLPs and Ltd companies.
We can also consider applications from expats, foreign nationals, overseas borrower’s, offshore companies and pension funds.