Commercial mortgages are a lot more flexible than residential property loans – but the Revolution team is often asked how bad credit might impact the application process! The good news is that you can take out a commercial mortgage with bad credit, whether you as the owner have adverse credit issues or the business itself has experienced some problems. Fewer lenders will consider a bad credit commercial mortgage, so an experienced broker is a key to achieving a competitive deal (and securing approval to start with!). Today we’ll explain a little more about how bad credit commercial mortgages work and what to expect.
Commercial Mortgages With a Low Credit Score
There are many reasons you might have a bad credit mortgage score – in some cases, that’s because you haven’t used any credit borrowing, so don’t have a history of making repayments. However, one of the first factors to remember is that some commercial mortgage lenders aren’t interested in arbitrary credit scores and will only be concerned if they find a record of adverse situations.
Another useful point is that commercial mortgages, as an unregulated product, have a far broader scope for negotiation. Therefore, a broker can include information about the reason, severity and age of any older credit issues in their discussions to mitigate any perceived risk.
Business Mortgages With Defaults on Your Credit File
Default is more serious than a late payment, and it’s best to wait 12 months if possible to increase the number of potential lenders that will help. Alternatively, specialist bad credit business mortgage brokers may be happy to assist if you have since resolved your credit problems and maintained good standing in all your financial affairs.
Applying for a Commercial Mortgage After Repossession
Scenarios such as bankruptcy or repossession pose a bigger challenge because many lenders, particularly high street banks, will refuse to lend to any applicant with such a severe issue on their credit file.
A lot depends on:
- How long ago did the repossession occurs.
- Any surrounding circumstances.
- Your financial transactions since.
- The amount of money involved in the repossession.
The longer ago your credit issues were, the greater your chances of getting a mortgage approval – and again, a niche bad credit specialist may be the best option.
Can I Get a Business Mortgage With Bad Credit?
As we’ve seen, commercial mortgages have more flexibility, so a lender will be able to consider the timing and nature of any credit problems into account. They’ll also look at other eligibility metrics and figures to arrive at a decision:
- Profit Margins: lenders will assess the business profitability, and although there isn’t a threshold operating profit requirement, the more stable the business, the better interest rates you’ll get (even if you have some bad credit issues to contend with).
- Deposit: commercial mortgages typically require a deposit from 20% and usually closer to 40%. A higher deposit can mitigate the risk associated with bad credit, or you can augment the security with an additional business asset.
- Trading History: although some lenders offer start-up mortgages, a normal business mortgage lender will prefer to lend to companies with a good track record and industry experience.
- Business Plan: your business plan is critical. It will show how you will use the mortgage financing to benefit your business and contribute to a long-term strategy to improve revenue and profitability.
The important thing to note is that although you may have fewer lenders to choose from, a whole-of-market broker can support your application and identify any potential problems before you submit any documents. It’s unwise to approach lenders directly without having a comprehensive understanding of their approach to bad credit lending since a rejected application might heighten your issues.
Should I Use a Non-Status Commercial Mortgage Provider?
Generally, we’d advise against a non-status business mortgage lender. However, it depends on how urgent your financing needs are and the level of bad credit you’re dealing with. A non-status lender is suited to businesses without the financial information that a conventional business mortgage provider requires to proceed through their eligibility assessments.
The Financial Conduct Authority (FCA) has clamped down on these lenders, so there are very few providers who meet regulatory conditions. Some non-status lenders deal specifically with adverse credit applicants, but the interest rates are generally high, and you’ll likely find a cap on the Loan to Value (LTV) you can borrow.
Our advice is to contact an independent broker to assess your borrowing options before making long-term financial decisions. There are multiple opportunities for bad credit business mortgage applicants to secure competitive lending, so accepting a steep interest rate may not be necessary.