Key takeaways
- Lenders assess the borrower, the property, and the type of loan all together.
- Owner-occupied and investment mortgages follow different rules and prioritise different things (e.g. your business’s profit or potential rental income).
- Most lenders want to see two to three years of filed accounts.
- Adverse credit doesn’t mean an automatic no, but lenders will want to understand the story behind it.
What determines whether a business qualifies for a commercial mortgage?
Lenders look at three things together: the borrower, the property and the purpose of the loan.
There are two main types of commercial mortgage. An owner-occupied mortgage is for a business that trades from the property they’re buying. An investment mortgage is for a property you let out to earn rent from tenants. Lenders apply different criteria to each. We’ve written a guide to commercial investment mortgages if you want to know more.
Eligibility isn’t one pass-or-fail test. Lenders look at several different factors and strength in one area can sometimes balance a weakness in another.
Deposit and loan-to-value requirements
Loan-to-value (LTV) is how much of the property’s assessed value a lender is willing to lend you. You cover the rest with your deposit.
With Allica Bank, you’ll need LTVs along the following lines:
| Mortgage type | Maximum LTV | Key considerations for affordability |
|---|---|---|
| Owner-occupied | 80% (needing a 20% deposit)1 | The borrower’s earnings (typically your earnings before interest, taxes, depreciation, and amortisation (EBITDA)) |
| Investment | 75% (needing a 25% deposit)1 | Rental income from tenants, subject to void and cost assumptions |
LTV limits aren’t fixed. They can vary by property type, loan size, deal structure and your overall strength as a borrower. Our guide to commercial mortgage deposits explains more, if you’re interested.
The type of rate you choose can also affect how a lender tests affordability. We’ve also written a guide to commercial mortgage rates that explains the differences between fixed and variable rates.
How property type changes your deposit requirement
Lenders sort commercial properties into categories, and the category sets the maximum LTV and so the minimum deposit.
| Property category | Examples |
|---|---|
| Standard commercial | Offices, industrial units, retail units, warehouses |
| Semi-commercial | Mixed-use buildings with residential and commercial parts (e.g. a shop with flats above it) |
| Specialist and trading | Hotels, care homes, nurseries, leisure venues |
| Professional practices (owner-occupied) | Accountancy firms, veterinary practices, architects, manufacturers |
| Specialist buy-to-let | Houses in multiple occupation (HMOs) or multi-unit freehold blocks (MUFBs), rather than single-property purchases |
Each of these categories has its own associated benefits and risks. None are better or worse than the other, but they need lenders to look at different areas of an application. Some lenders might choose not to lend to one or more of these sectors, due to their preferences for risk or complexity.
Others are happy to work in these specialist areas. For example, we have a team dedicated to healthcare commercial mortgages. They have a deep understanding of the sector and what good practice looks like.
What credit history do you need for a commercial mortgage?
Lenders have the option to check two credit profiles:
- The personal credit history of the directors, partners or ultimate beneficial owners
- The business’s own commercial credit record.
Both can affect the outcome of your application.
Personal credit: Lenders look for adverse markers such as county court judgments (CCJs), defaults, missed payments and previous insolvency. These can affect whether you’re accepted and the terms you’re offered.
Business credit: An established business with a clean commercial record may be in a stronger position than one with unresolved markers, even if its financial performance is otherwise strong.
Personal financial means: Lenders may look at a director’s personal finances beyond credit scores. This mainly applies when a personal guarantee is needed on a larger loan.
How many years of trading history do you need for a commercial mortgage?
Most lenders want two to three years of trading history, shown by filed accounts. For an Allica commercial mortgage, you’ll need at least two years of trading history.1 We can lend to newly formed special purpose vehicles (SPVs), but have specific requirements in this case.
Your trading history is one way the lender assesses your financial stability to support a commercial mortgage.
Bear in mind: quality matters as much as quantity. Two years of profitable, clearly documented accounts can be a better position than four years of up-and-down results. Lenders look at the trend across the whole period, including how revenue, margins and profit have moved, rather than just how the most recent year went.
For commercial investment mortgages
Lenders look at the borrower’s trading record alongside the property’s income record. A strong borrower with a property that’s had long void periods will still need to explain how they plan to improve tenancy performance.
For newly formed entities
Including special purpose vehicles (SPVs) set up to hold property, standard criteria don’t usually apply. Lenders assess them differently, often asking for extra evidence of affordability and the directors’ backgrounds.
Frequently asked questions
Can a limited company apply for a commercial mortgage?
Yes. Limited companies are a standard, widely accepted way to borrow for both owner-occupied and investment commercial mortgages.
How much deposit do I need for a commercial mortgage?
It varies by property type, what the loan is for and your profile as a borrower. For some broad context, the smallest deposit we allow for owner-occupied commercial mortgages is 20%. For a commercial investment mortgage, it’s 25%.
Does adverse credit history prevent you from getting a commercial mortgage?
Not automatically, but it will affect how a lender assesses you and may change the terms on offer. Lenders will want to understand what happened, see evidence that you’ve resolved it, and be satisfied it doesn’t reflect ongoing financial difficulties.
Do I need to be a UK resident to apply for a commercial mortgage?
Some lenders will consider an application where the owner is based outside the UK, with extra criteria such as higher debt service cover and a lower maximum LTV. For businesses with several directors, most lenders want at least one decision-making director to be permanently resident in the UK.
Talk to Allica Bank about your commercial mortgage
We take a relationship-led approach, backed by real sector expertise, to lend to established businesses in the UK.
Across all of teams, we can support commercial, semi-commercial, healthcare, hospitality and specialist buy-to-let properties.
Speak to one of our relationship managers to see where you stand before you commit to an application.
Explore Allica commercial mortgages1
1 All lending is subject to status, lending criteria, and a satisfactory credit assessment. Terms and conditions apply. For more information, visit https://www.allica.bank/property-finance.
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Disclaimer: This is information – not financial advice or recommendation.
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