When applying for a new commercial mortgage, the lender will want to see several documents before agreeing the loan. The exact documents required will vary from lender to lender, but there are usually a few common ones for most applications.
Some of the lenders requirements will vary depending on whether the mortgage is an owner-occupied business mortgage, or for a commercial investment property. For the purposes of this commercial mortgage guide, we have broken down the documents by the commercial mortgage type.
It is worth ensuring these documents are ready and scanned onto your computer once you have applied as you may well be asked for them.
Documents that are always required
Regardless of the purpose of your commercial mortgage application, the lender will usually require certain documents from you before they can proceed. They are:
- Basic application information – Whether the lender uses an application form, or just requires the preliminary details by email, they will need to know names and basic information. This will allow them to get an understanding of the transaction and who the people behind it are. We always produce a full report on the application to give the lender a clear picture of what is required. Of course, we always look to present the application in the best light, whilst being factually correct.
- Assets, liability, income and expenditure (ALIE) summary – Every lender asks for details of the current position in relation to assets held, liabilities owed, income and expenditure. This allows them to gain an understanding of your current cash flow and net worth positions.Although this may seem strange, the lender will ask for an ALIE for the people behind the application, even if it is made in a company name. All directors and major shareholders will usually be expected to provide one.This is designed to create a picture of the financial health of the people who are controlling the finances behind the application.
- 3-6 months’ personal bank statements – Personal bank statements are requested by almost all lenders to check basic account conduct and to double check income vs expenditure. By checking bank statements over a number of months, the lender will gain more of an understanding of your financial position.
- COVID impact information – In the current climate, lenders will want to know how COVID has impacted you and where relevant, your business.Details of any changes to income or employment prospects will be required. Commentary on whether tenants have paid their rent on time throughout the pandemic and other relevant details will be required, based on your circumstances.
Owner-occupied commercial mortgages
When applying for an owner-occupied business mortgage, you will usually be asked for the following:
- 2 years’ trading accounts – – Trading accounts are used to assess affordability of the new loan. Affordability calculations run deeper than just checking the net profit figure. The trading accounts show a detailed picture of the financial health of a business.
- 6 months’ business bank statements – Much like personal bank statements, business bank statements are used to check account conduct and cash flow. Bank statements are not required where a business is being purchased along with its premises.
- Details of any likely changes to your future turnover or profit – If the prospects of the business are significantly different to the current position, the lender will want to know. Likely changes are reductions in costs, increases in trade or operating methods.
Commercial investment mortgages
The documents required when arranging a commercial investment mortgage are:
- Details of the tenant and a copy of the lease – The rental income is the money that will be used to maintain the mortgage payments. As the rental income relies on the lease, the lender will be keen to fully assess the lease to ensure the income is secure. The full lease will always be required, with no pages missing.
- Details of any other investment properties – If you own any other investment properties, the lender will want the following details for each property to give them an insight into the overall health of the portfolio:
– Property value
– Amount owed
– Rental income
– Lease length
– Monthly mortgage payment
Although some lenders will not require the above information on every application, they are requested on almost every application. When your application is submitted and you’re eager to have it agreed quickly, every day counts.
By supplying a full application pack to the lender, you make it much easier for them to say ‘yes’. Prepare the documents upfront and you can create a strong first impression with the lender, increasing your chances of having your application approved.