Term lending secured on commercial property. If you occupy it, the lender reads your trading accounts. If you let it, the lender reads the rent and the tenant. The pack has to answer whichever question is being asked.
3 to 25 years · up to around 75% LTV · capital and interest or part interest-only
Typical situations
The landlord offers you the freehold, the rent you have been paying is not far off what a mortgage would cost, and the business has been in the building long enough to know it works. Owner-occupied lending is assessed on the trading accounts, so the case is made on what the business earns rather than on what the building might let for.
A unit with a tenant in place and years left on the lease. Here the lender underwrites the rent and the strength of the covenant behind it, so the lease and the tenant’s accounts carry the case rather than your own.
A facility maturing, or a structure that made sense five years ago and does not now. Refinancing is the one case where there is time to do it properly, which is why it is worth starting around six months out.
On owner-occupied lending the lender is underwriting your business. It works from filed accounts and current management figures, adds back directors’ remuneration and one-off costs where they are evidenced, takes out the rent you will stop paying once you own the building, and then tests whether what is left services the loan at a rate higher than the one you will actually pay.
On investment lending the lender is underwriting the income. It looks at the passing rent, how long the lease has to run, whether there is a break clause, and what the tenant’s own accounts say about their ability to keep paying it. Your accounts matter far less than theirs.
It is worth knowing which assessment you are in before an application goes anywhere, because the document list is different, the loan to value is different, and so is the list of lenders worth approaching.
Indicative market ranges, not an offer of finance. Terms depend on the lender, the security and your circumstances.
What the lender assesses
What goes in the pack
Directors’ pay, one-off costs and the rent that stops once you own the building are all adjustments lenders will accept, but only where they are set out and evidenced in the pack. Raised after a decline, they rarely reopen the case.
Three years left and no break protection limits both the loan to value and the term. We flag it at the start and put the case to lenders who assess on re-letting prospects rather than on remaining term alone.
On an investment case the tenant is part of the security. Their accounts go in at submission so the valuer and the credit team are working from the same picture rather than discovering it separately.
A maturing facility wants about six months. Started later, the choice narrows to whoever can move fastest rather than whoever offers the right structure.
Usually around 25% to 30% of value for owner-occupied premises, and more for specialist property such as care, leisure or filling stations. Some lenders will consider less where there is additional security or a long trading record in the building. The figure is set by the property at least as much as by the business.
Yes, and it is common. A trading company buying its own premises is assessed on its accounts, while a separate property company is usually assessed on the rent it charges the trading company. Either way the lender will normally want a debenture and personal guarantees from the directors.
Lenders test affordability at a rate above the one you will pay, to see whether the business could still service the loan if rates rose. It is why a facility that looks comfortable at today’s payment can still fail an affordability test, and why the trading figures have to be presented properly rather than simply attached.
Full interest-only is unusual. Part interest-only across a portion of the loan is available where the profile supports it, for example while a property is being repositioned or a business is funding growth alongside the purchase. Less capital is repaid over the term, so lenders look harder at what happens at the end of it.
Lending to a company, or on property used for business or investment purposes, is generally outside Financial Conduct Authority regulation. Where any part of the security is a home you or a family member lives in, that element is regulated and we refer it to an appropriately authorised firm rather than arranging it.
When the purchase has to complete before a term lender can realistically be ready, with the mortgage as the exit.
Where the property is residential rather than commercial, and the assessment moves to rental cover.
Your property may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it.
We will tell you whether it is an owner-occupied or an investment case, what the pack needs to contain, and which lenders take that property type.
