Commercial Mortgage - Lenders' Criteria

Lenders' Criteria

Most banks and building societies offer commercial mortgages, but applicants must satisfy the lenders' criteria for qualification. The primary criterion is the debt service coverage ratio or the ratio of cash available to the required loan payments. Some lenders may accept applications where there is an adverse credit history, but most require a positive personal credit rating and clear evidence that the business is creditworthy. Most will apply a loan-to-value ratio and will expect the business to invest a proportion of its own money into the purchase.

The lender's decision will also depend on the business' current circumstances, a commercial lender will expect stability and profitability. They may ask to see a business plan as well as long-term financial projections, to assure themselves that the business has, and will continue to have, the ability to make repayments on the loan. Some lenders impose restrictions on the uses of commercial premises and certain business concerns may be excluded altogether. The terms of a commercial mortgage depend largely on the type of business the type of premises or land to be bought.