Commercial Mortgage Lender Panel
There are 3 primary sources of commercial mortgages: Banks, Specialist or Niche Lenders, and Building Societies.
This page was written to demonstrate the basic differences between each type of lender.
Introduction to Commercial Mortgage Lenders
Today there are many more commercial mortgage lenders in the industry than there were 10 years ago.
New entrants, in the form of Building Societies and specialist niche lenders, have brought a changed vision of risk and therefore potentially a different view of cost to the market. The basis for commercial lending decisions has evolved significantly to reflect this.
Clearly, overlaps exist but the emergence of new funding sources has meant a different approach to lending decisions between the business status based lenders (high street banks), and the bricks and mortar based lenders (niche or specialist lenders).
What is good, is that there is now, a much greater opportunity to secure commercial mortgage finance for small businesses.
Many Commercial Mortgage Lenders are used by TAL Commercial to fulfill our clients financial requirements.
The quality of each of these is agreed but the qualities each lender uses to assess fitness of loan risk is different, sometimes subtly, sometimes diametrically.
High Street Banks
The simplest way of discovering the likelihood of you obtaining a commercial mortgage or other commercial finance from a Bank is by looking at the status of your business accounts, and ascertaining whether you have sufficient supporting information on which a Bank could make a risk assessment.
Very often Banks are reluctant to lend money to companies that are unable to demonstrate liquidity, as may be shown through the production of:
- Minimum 3 years profitable accounts (with few exceptions)
- Business Plans and Projections
- Clean credit file
- Proof of payments against other mortgages
At a minimum, the Bank will want to ensure that through a valuation, that the value of the property is consistent with the purchase price, and if applicable, that potential *rental incomes meet professional assessments.
(* Expect scrutiny of tenancy agreements and rental if you are buying an investment property. )
In some cases clients cannot provide all of the requested supporting information, but do have industry experience, and a clean credit history. In these cases Banks may take the view that the risk is moderately high, but could be softened by building a 2nd charge security using equity from other residential or commercial properties in the possession of the company directors.
Reasons To Source From High Street Banks
- Generally, the cheapest source of loans but only if the lending risk is mitigated.
- Reduced rate i.e. subsidised Business Banking facilities may be offered
- Early Redemption Charges may be less than with specialist lenders.
Banks are unlikely to lend money at the highest Loan to Values (LTV’s). The maximum a Bank will generally lend is up to 80% of the value of the property. This decreases for commercial properties/businesses considered to be in higher risk sectors.
Negative Aspects Of Sourcing From High Street Banks
- Banks typically adopt risk-averse lending criteria
- Banks can take much longer to process an application and assess the lending risk
- Additional security may be required to reduce the lenders risk.
- More supporting information is required
Non-Status/Specialist Commercial Lenders
Niche, Non-Status or Self-Certified Specialist Lenders are an alternative source of commercial mortgage finance to the High Street Banks.
These lenders base their decisions on different criteria, in most cases the of the bricks and mortar value.
They take a reduced interest in the status of the business’s accounts, but will require confirmation from the company owner and their accountant that the business can afford the mortgage payments.
Whilst they operate sensible lending policies, and compete for main stream business with the High Street, these these lenders are also willing to lend to businesses falling outside of the High Street Bank criteria, and take on higher risk enterprises including:
- Speculative development projects
- CCJ and discharged bankruptcies
- Start-ups or cash businesses
The combination of reduced paperwork, and the loan risk being judged on the value of/equity in the property being purchased, leads to a significantly shorter time to process the application and issue the monies.
A self-cert mortgage can be completed in as little as 2 weeks, but the norm is usually between 4-7 weeks, depending on whether any additional conditions are placed on the mortgage offer being issued.
Reasons To Source From Specialist Lenders
- Rapid decision in principle (less than 24 hours)
- Competitive interest rates
- Interest Only and Fixed Rate Options
- Lesser requirement for proof of income
- More flexible approach to lending
Reasons Not To Source From Specialist Lenders
- Interest rates may be higher than Banks
- Often greater Early Redemption Charges (ERC's)
Building Societies
There are several Building Socieites that lend against commercial property, but why aren't there more?
The reason is that in 1986 The Building Societies Act was passed by UK Government.
This mandated that Building Societies had to lend a minimum of 75% of their funds for residential property. The remaining 25% of the funds had conditions attached that meant that there was some money available for commercial property loans, but not nearly enough to make a big impact on the market. The use of the 25% also had conditions attached to its use.
In 1997 the Act was amended. Restrictions on the use of the remaining 25% were lifted, and the impact was a move toward targeted commercial lending.
Today we find that Building Societies are specialising in specific less risky vertical markets, and often offering conservative LTV's at attractive rates of interest.
TAL Commercial consider all
commercial lending sources before making recommendations
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