While it’s true that you can find it much more difficult to find a suitable commercial mortgage when either you or your business has a bad credit history, it doesn’t mean that there are no options for you at all.
In fact, there are many specialist lenders out there who show much more flexibility when it comes to finding a commercial mortgage with bad credit. You just need to know where you stand with your financial situation and we’re here to help you out.
How to Get a Commercial Mortgage with Bad Credit
Before we begin, here are the major factors that determine your ability to get a commercial mortgage with bad credit:
- Current financial status.
- The severity of the poor credit.
- How much time has passed since the bad credit.
- The lender’s criteria.
Ultimately, having an adverse credit rating can impact your ability to secure a commercial mortgage, but it doesn’t necessarily make it impossible. There are specialist lenders who offer commercial finance, but they will have specific criteria you will have to satisfy.
How Does a Bad Credit Rating Affect a Commercial Mortgage?
The reason lenders like to see your credit history and would prefer a good credit history is because it is an indicator of your liability to make the loan repayments.
When the credit rating is poor or your credit history shows a past of missed payments, defaults or repossessions, this serves as a red flag to a lender and they are likely to determine you a too high risk to lend money to.
High street lenders, in particular, can be a lot more reluctant to provide commercial mortgages to those with bad credit. However, you will find niche and specialist lenders more willing to take less than ideal credit ratings into account.
It does highly depend on the specifics though as a default that occurred more than 12 months ago is not going to pose as much of a problem than the same occurrence less than 6 months ago. And so it does depend on the severity of your bad credit.
The best thing to do in this instance is to speak to an expert commercial mortgage advisor who can take a look at your credit profile and give you an idea of the possibilities available to you.
Factors that can contribute to a bad credit rating include the following:
- CCJs – a county court judgement is when you’ve owed money to a person or company, and they’ve had to go to the courts to recover the funds. If you’ve had a CCJ but have ‘fully satisfied’ the CCJ, then you may still be able to get a mortgage.
- IVAs or debt management plans – if you have taken out an individual voluntary agreement (IVA) to help clear debts, then most lenders may require a larger deposit from you, and a history of keeping up payments on your debt management plan – however, there may be some bad credit mortgage providers that will consider your case.
- Bankruptcy – you may still be able to get a mortgage if you’ve been declared bankrupt, however, lenders will need to know when the bankruptcy was discharged, and how any credit has been managed since.
- Payday loans – it is still possible to get a mortgage if you’ve had a payday loan, but generally, payday loans are a clear sign of a bad credit rating.
What are The Criteria for a Commercial Mortgage with Bad Credit?
So you may be wondering what requirements there are for bad credit commercial mortgages. Well, there are several factors that your acceptance for a mortgage will be dependent on, including:
- Your Current Financial Status – This is referring to your current income and outgoings which determine your ability to make repayments.
- The Deposit – The deposit can vary depending on the structure of the loan and your personal circumstances. A larger minimum deposit is most likely to be required the worse your credit score is.
- Profitability – Lenders will take into account your earnings before interest, tax, depreciation and amortization (EBITDA) and are much more likely to provide mortgages to those with higher EBITDA figures.
- Business Plan – When overlooking bad credit, the lender may wish to see business plans to get a better sense of security from the deal.
- Relevant Industry Experience – The lender may also take into account your experience within the industry that your business operates in. Just like having a good business plan, this gives the lender more confidence that they are going to see a return on their loan.
Having said this, all lenders are different and the requirements between them all can vary quite considerably. Additionally, their willingness to accept a commercial mortgage application can vary too!
Consider looking at your application from a different perspective and treat it more like a business proposition. The more profitable and committed you are, the more attractive the application will seem to the lenders.
Non-Status Commercial Mortgages
Another viable but riskier possibility for those seeking bad credit commercial mortgages is to look into non-status commercial mortgages. Non-status mortgages often do not require a credit check or even necessarily proof of income but the loan is taken out against a commercial property.
This can be good for those with severely adverse credit histories and have explored all avenues but cannot seem to get a commercial mortgage but, they should be seen as a last resort.
The reason for this is not only that your property will be at risk should repayments not be met, but the required deposit and interests rates tend to be significantly higher.
The best route to take would be to explore other options you have first, and the most sensible way to do this would be to speak to an expert commercial mortgage adviser. This way you can get more information about lenders whose eligibility requirements you can meet.
Semi-Commercial Mortgages and Development Finance
There are also some who wish to refinance or purchase a property for combined residential and commercial use to drive a rental income. An example of this would be a pub or bar with rentable rooms.
It is in every way just as possible to acquire a mortgage with bad credit for semi-commercial purposes and similar eligibility requirements, such as verifiable income, loan amount, type of business, etc, still stand.
When it comes to undertaking a building project, on the other hand, development finance is slightly different as a lot more information such as:
- Planning Permission.
- Material Costs.
- Contractor Information.
- Duration of the Project.
- Associated Building Regulations.
- Gross Development.
- Exit Strategy.
Development finance deals are still available for those with bad credit and looking for a commercial loan but usually, there will need to be valid reasons for the adverse credit history which can help satisfy the lender’s concerns.
How to Find a Bad Credit Commercial Mortgage
Lenders with low-risk thresholds are quite difficult to find if you have an adverse credit history, particularly mainstream lenders that you would find on the high street. Finding a lender that you will likely fit the eligibility requirements for is not the easiest thing to do on your own.
Our expert mortgage advisors are here to help you find a lender which you can secure a good deal from. Deals available will be based on your financial situation and so you’ll have a much easier time finding a loan which is best for you.
Give us a call on 01925 906 210 to speak to an advisor, or contact us for mortgage advice that’s personal to you and takes your credit history into account. That way you’ll know where you stand in the commercial mortgage market and we can guide you on your route to securing a suitable loan.