Securing A Commercial Mortgage For A Start Up Business

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Many business owners prefer to buy their own property, rather than renting, and that’s true of both established businesses and start-ups.

As commercial mortgage lenders usually use previous trading history to confirm affordability, start-up businesses present a challenge. In the absence of previous, reliable trading figures, proving affordability can be difficult.

In this guide we will break down when start-up business can qualify for a commercial mortgage, likely finance terms and the documents required to get your application moving.

Read on below to find out more or fill in the form to talk to an expert.

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Will I Qualify For A Commercial Mortgage?

Most start-up businesses can qualify for commercial mortgages, but there are a number of important factors in ensuring your application is successful:

  • It’s important that you know the likely profitability of your business to ensure the proposed loan is affordable. The early days in business can be tough and the lender will not want you to put additional strain on the business unless it’s sure you can afford it.
  • Although the applicant’s credit history doesn’t have to be perfect, heavier adverse credit, such as recent County Court Judgements (CCJs), mortgage arrears or current cash flow problems may be a cause for concern.
  • Not all industries will be able to achieve the same level of borrowing, so it’s worth checking upfront to ensure you will qualify.

Our experienced commercial mortgage advisers are always on hand and ready to talk through your circumstances. They will be able to quickly tell you the chances of success for your application.

What Will The Lender Offer?

When looking to take on a commercial mortgage for a start-up business, your lending options will be limited. Most lenders will only accept applications from established and profitable businesses.

As such, high street rates aren’t usually available, and the deposit needed is higher than applications for established businesses. You can usually expect to borrow up to 60% of the property value as a maximum. Meaning a deposit of at least 40% of the property value is required.

Interest rates for start-up businesses are usually in the region of 8% per annum. The rate charged is higher than that charged to an established business, and is designed to reflect the increased risk of lending to a business that is yet to prove its profitability.

The higher interest rate can usually be offset slightly by the option to take out the loan on an interest only basis to keep the payments down.

What Documents Will I Have To Provide?

When looking to take out a commercial mortgage for a brand-new business, there are a number of common documents that will usually be requested.

  • Projections – Projections will be used to assess the affordability of the loan. As they play such an important role in the lending decision, it’s important that they are completed to the highest possible standard. Detailed projections are a must and should be prepared upfront.
  • Business Plan – The lender will be keen to understand how realistic your projections are, and that’s impossible without a detailed breakdown of what you will do, and how you will do it. When completing your business plan, it’s important that you break down each area in detail to give the lender the clearest possible picture of your new business.
  • Bank Statements – Each lender will require between 3-6 months personal bank statements. These will be needed upfront, so make sure you have your statements to hand, and ready to give to the lender. If you can’t find any of your last 6 months statements, you can request them from your bank and they will send them out. This can take a week or so and requesting them upfront will prevent delays further down the line.

About The Author

This content was produced by our Commercial Lending Director, Gary Hemming. Gary has over 15 years’ experience in financial services and specialises in bridging loans, commercial mortgages, development finance and business loans. He is widely respected in his field and regularly provides expert commentary for specialist trade publications, specialist business press as well as local and national press.

Gary Hemming CeMAP CeFA CeRGI CSP  -  
Commercial Lending Director

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