Bad Credit Commercial Mortgages

We’ll explore how having bad credit can impact a commercial mortgage application, how to get approved under these circumstances and why using the right mortgage broker can help speed up the process.

Can you get a commercial mortgage with bad credit?

Yes, it’s possible. There are many commercial mortgage lenders in the market and some of these are open to applicants with bad credit.

These specialist lenders may take additional steps to offset the risk of lending to you, such as:

• Charging you a higher mortgage rate
• Asking you to provide extra security on the loan
• Requesting a personal guarantee from the directors of the company (meaning you’ll be personally responsible for repaying the loan if your business can’t)

How to get a commercial mortgage with adverse credit

Commercial lenders work on a case-by-case basis. So, you must take steps to build your mortgage application’s credibility and rectify any adverse credit issues still outstanding before you submit it.

If you think you might have bad credit, make an enquiry with us so we can match you with a commercial mortgage broker who specialises in helping applicants and businesses with such issues secure finance.

The mortgage broker we handpick for you will guide you through the following steps…

• Preparing a business plan:  Your broker will advise you about whether this is essential and offer pointers on what to include. If a business plan is not required, they will help you prepare any other documents your lender will need.
• Downloading and optimising credit reports:  Your mortgage broker will help you do this for yourself and/or your business. They will suggest ways to build and repair credit quickly, ahead of your application.
• Finding the ideal commercial mortgage lender:  Your mortgage broker will have deep working relationships with the commercial lenders who are best placed to help an individual or business with bad credit, and they may be able to access exclusive rates and deals through them.

How do commercial lenders assess bad credit applicants?

This is an unregulated sector and lenders therefore have more flexibility.

The lender will look at all the circumstances surrounding your bad credit, including its age, severity and the reason for it, and may offset this information against the strength of your business plan or investment.

One thing to keep in mind, though, is that there are no strict criteria you need to meet. Commercial mortgage lenders can set their own bespoke requirements.

Which credit problems will lenders accept?

“Bad credit” is a term that covers a range of issues of varying severity. An applicant with a couple of late payments is a very different case from an applicant with an undischarged bankruptcy.

Here are some common credit problems and details of how they may affect your commercial mortgage application:

Defaults

A default is a missed payment. Mortgage defaults will be seen very seriously while defaults on other debts and bills less so. Defaults of any type can sometimes cause your commercial mortgage to be declined, particularly if they are recent or numerous, but single defaults and defaults that are more than two years old might be overlooked.

Individual voluntary agreements and debt management plans

An individual voluntary agreement (IVA) is a plan for managing your personal or business debts by spreading the repayments over a longer period than initially agreed, often up to six years.

If you currently have an IVA in place, it can be difficult to get a commercial mortgage. Once you’ve completed it and built up a history of punctual repayments (e.g. 12 months) you’ll be in a better position. The same is true of Debt Management Plans (DMP).

County court judgements

A county court judgement (CCJ) is a court order that a creditor can seek against you (for individual debts) or your business (for business debts) to demand repayment of the money owed to them.

If a CCJ is recent, unpaid, or large (i.e. more than £1000) it is more likely to cause your application to be declined. Once the CCJ is fully satisfied (i.e. repaid) and more than three years old, most lenders will no longer hold it against you. Some are more generous and will accept your application even sooner.

Bankruptcy and repossessions

Most lenders will decline a commercial application if your bankruptcy is within the past year.

However, after six years have passed (and if you have not experienced further credit issues at this time), you may be able to get a commercial mortgage from a specialist lender.

The criteria surrounding repossessions are similar but bear in mind that commercial lending is always determined on a case-by-case basis with more flexibility than residential.

What about refinancing in these circumstances?

If you or your business have experienced credit issues since you originally took out your commercial mortgage, it can cause problems when it’s time to remortgage. Many lenders will no longer consider your application, and your limited choice can result in a big increase in your rates.

Unfortunately, higher monthly payments might be unavoidable. Your best strategy is to shop around among all the lenders who will still consider your application to be sure you’ve found the very best deal available.

Which lenders are available?

Commercial lenders who might consider your application, for both a mortgage and refinancing in these circumstances, include:

• ABC Finance
• Barclays
• Landbay
• HSBC
• West One Loans
• Royal Bank of Scotland

However, commercial mortgages are bespoke and unregulated, and many other lenders operating in this space are well placed to consider offering finance to customers and businesses with bad credit, under the right circumstances.

How Online Mortgage Advisor can help

Getting the right advice in this situation is crucial and will help you avoid paying more than you need to. You’ll want to work with a specialist with extensive experience in both commercial mortgages and bad credit applications.

We work with numerous brokers who handle applications like these. You can try our free broker-matching service to speak to someone about your case and get answers to your questions. Just give us a call on 0808 189 2301 or make an enquiry online.