How to Find a Commercial Mortgage as a Startup Venture

How to Find a Commercial Mortgage as a Startup Venture
How to Find a Commercial Mortgage as a Startup Venture

Finding a commercial mortgage as a newly established business can be tough – but it’s often cost-effective to invest in buying a company premise rather than paying rent.

Commercial mortgage brokers tend to rely on an analysis of past trading history to decide whether an applying business is eligible, which presents a challenge.

The trick is to ensure your application demonstrates affordability metrics since a younger company won’t likely have trading figures, which means working with a capable broker to build a strong suite of business plans.

Qualifying for a UK Commercial Mortgages

Before you put pen to paper, it’s worth getting to grips with the factors that have the most influence on the success of your commercial mortgage application:

  • Lenders will need to have in-depth assessments of business profitability forecasts to have a basis upon which to decide whether the loan is affordable.
  • Even though you don’t need a perfect credit score to apply, you might struggle to secure approval if directors or owners have severe adverse credit.
  • The industry you operate in will be a consideration, so a broker can advise whether your specific sector requires you to apply to niche lenders if any high-risk factors signal a likely rejection from a mainstream bank.

The accomplished Revolution Finance Brokers team can walk you through any of these points to further explain how they may impact your chances of success.

Average Commercial Mortgage Terms for New Companies

It’s fair to say that your lending options are fairly limited if you haven’t established a trading history because mainstream lenders invariably only support profitable businesses with at least two to three years of filed accounts.

However, a niche lender probably can help even if your everyday bank can’t.

Deposit requirements tend to be higher, and start-ups usually borrow up to about 60% of the property value, so they need to have a deposit equivalent to 40% of the cost (although that can be financed through the business in multiple ways).

Exact interest rates will depend on a host of variables, but you may find that rates start from around 7% a year. 

Yes, it’s more expensive than a typical commercial mortgage, but that’s because your lender is accepting a much higher level of risk exposure.

Most early-stage enterprises opt for an interest-only mortgage at the outset to minimise the impact on their cash flow.

You can always refinance at a later stage when your firm has a clear trading pattern and usually achieve a more favourable rate.

Strengthening a New Business Commercial Mortgage Application

Revolution Finance Brokers often hears from brand new businesses that have been rejected for mortgage finance, but have a viable opportunity to secure great mortgage deals, provided they deliver comprehensive documentation.

We’d always recommend you include everything below as supporting statements:

  • Revenue and profitability projections: although a forecast isn’t set in stone, it gives the lender at least something to base their affordability assessments against. Detailed projections with citations and contractual links can go a long way to alleviating the underwriter’s concerns.
  • Business plans are crucial, and the lender will look at whether they feel the programme is realistic. Therefore, you need to give a detailed breakdown of what you’re planning to achieve and how you will get there. The more detail, the better.
  • Bank statements for the last three to six months should be available, and if you can get these ready to submit to the lender straight away, they’ll be less concerned. 

If you submit a new business commercial mortgage application with a robust set of documents, plans and forecasts, it presents an excellent image and ensures a lender will take the time to review your paperwork and come to an informed decision.

The worst course of action is to apply with zero context, which inevitably results in a rejection.

Alternatives to Commercial Mortgages for Start-Up UK Businesses

There are hundreds of potential lending products. If you don’t think a mortgage is right for you or want to find a shorter-term alternative until you’re better positioned to apply for a mortgage, you could consider different options.

Bridge loans are the most popular option and available even if you have very little trading history behind your firm.

New businesses often use bridging finance to buy a property and have less rigorous eligibility criteria to conform to, provided the premise is worth enough and the right deposit level is available.

The essential factor is to demonstrate you have a stable exit strategy and will be able to pay the loan back.

If you’d like support compiling a thorough new business mortgage application or require advice about the best lenders on the market, please get in touch with Revolution on 0330 304 3040 or send us an email at info@revolutionbrokers.co.uk for guidance from the commercial mortgage experts.

Read Also: Top Tips for Getting the Best Valuation for Your Business

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