Commercial Borrowing for Trading Businesses
In this short video, Nick Tidball, Commercial & Specialist Adviser at MB Commercial, breaks down what business owners need to know about securing a commercial loan for a trading business. He explains how lending criteria for commercial borrowing differ from standard residential mortgages, how interest rates compare, and why lenders may take seasonal fluctuations into account. Nick also highlights the importance of providing detailed and accurate information upfront to give your application the best chance of success.
Navigating the world of commercial borrowing can seem overwhelming, especially for trading businesses. Our commercial and specialist broker Nick Tidball has a concise guide.
Whether you’re looking to purchase a new shopfront, a factory, or an industrial facility, our guide will explain what commercial borrowing entails, how to prepare, and what to expect along the way.
Commercial mortgages vs residential mortgages
At its core, a commercial mortgage differs significantly from a residential mortgage. While residential mortgages are designed for personal homes, commercial mortgages are tailored for business premises, such as warehouses, factories, high-street shops, or industrial units.
Rates for commercial mortgages are typically higher due to their complexity. Factors like market trends, your business performance, and the type of property impact the rate.
Residential mortgages focus on personal income, debt-to-income ratios, and credit scores. Commercial mortgages, on the other hand, take a deeper look into your business financials, the property in question, and industry risks.
Getting started
When applying for a commercial mortgage, the key is presenting a strong, well-documented case. The more transparent and thorough you are with the required information, the quicker the process is likely to proceed. Here’s an overview of what lenders typically look for and request:
Business strength and performance
Lenders will assess the stability and growth of your business. To demonstrate this, you will need to provide:
- Two to three years of trading accounts, focusing on your net profit.
- Three months’ worth of bank statements.
- If relevant, explain seasonal fluctuations in your business and how your high-performing periods balance out low seasons.
Supporting documentation
Beyond your accounts, lenders also frequently ask for:
- Proof of ID and address
- A statement of assets and liabilities
- A detailed business plan showing the purpose of the loan, repayment strategy, and projections for growth
How much could you borrow?
Most lenders typically offer a maximum loan-to-value (LTV) ratio of 75%, which means you’ll need to provide a 25% deposit. For larger or more complex cases, certain lenders might stretch to an 80% LTV.
How long does the process take?
It varies based on complexity, but a straightforward case with no major complications typically takes eight to 12 weeks from application to completion. More complex situations may take longer, so it’s important to be realistic and allow for potential delays.
Choosing the right lender
Speaking with an experienced mortgage broker could make a world of difference when it comes to finding the right lender. A good broker will have the expertise to evaluate your case, compare options, and guide you towards the best deal, saving you time and effort.
What’s the term of a commercial mortgage?
Commercial mortgage terms are similar to residential mortgages. Many lenders offer terms of up to 20-25 years, providing plenty of flexibility for repayment.
Why use a broker?
Again, there are important advantages to using a broker when applying for a commercial mortgage:
- Brokers have extensive knowledge of the market and can provide valuable advice throughout the process.
- They can connect you with both high street and specialist lenders, giving you more options.
- Brokers can identify deals tailored to your unique situation, ensuring the terms align with your business requirements.
- With their relationships and expertise, brokers can streamline the application process, getting you faster decisions and approvals.
We’re here to help if you need advice.