Getting a commercial mortgage approved can prove to be a difficult process. And in some instances, even experienced business owners may find themselves making errors which obviously could result in not getting the mortgage approved. To increase your chances of success, it's important to avoid these mistakes. In this article we look at some of the most common mistakes which you may want to avoid. Read on.

1. Underestimating the application process

The lack of preparation before applying for a commercial mortgage won’t be a good start. Not preparing adequately with financial documents, business plans, and property information can delay or even end up with the application being rejected.

As a busy business owner, you may tend to overlook some important areas within the commercial mortgage application. Taking time to thoroughly check the application while making sure all the required documentation is provided, will give you a better chance of getting your mortgage approved.

Another important factor is understanding timeframes. As a business person, time management is invaluable. A commercial mortgage application may take time to come through, therefore you may want to plan accordingly to avoid missing crucial deadlines.

2. Overlooking your credit score

The importance of a good credit score cannot be overemphasised when it comes to getting a mortgage. A poor credit score can significantly impact your eligibility for a commercial mortgage. Remember to frequently keep a check on your credit score. If there are any discrepancies, make sure to clarify them before lodging your application. Focus on building a strong business credit history by paying bills on time and establishing credit lines.

3. Ignoring the importance of a business plan

A business plan shows the lender that your venture is geared to running as an income generating business. The feasibility of the business is a good way to convince a lender. After all, your success to a lender is an assurance that you will be able to pay off your loan as per the terms.  A poorly written or incomplete business plan can raise red flags for lenders, resulting in a rejected mortgage application.

4. Overlooking the Loan-to-Value (LTV) ratio

It is common knowledge that a high LTV ratio can pose a higher risk for the lender, resulting in higher interest rates. You will need to evaluate how much your LTV ratio will be and how much you are going to put down as a deposit. Aim for a higher down payment to improve your chances of securing the mortgage without rejection from the lender.

5. Failing to consider ongoing costs

Keep in mind that as in any property, you will have to factor in ongoing maintenance costs, property taxes, insurance, and management fees. Without carrying out careful planning on how to manage your running costs, you could easily fall into bankruptcy even resulting in closure of the business.

While a business plan will ideally outline the future of your company, it won’t be able to show how much expenditure will be incurred for its day to day running. You will have to show your lender the ability on how you plan to cope with these running costs.

6. Not considering the importance of the location

No doubt, location of the property plays an important role. The location where your business is set up can significantly impact its value, rental income, and potential for growth. If your commercial mortgage is to purchase a property in a highly sought after business district, it is only correct to assume that the potential of your business growing is much greater than in a not so commercially sought after area. You may want to conduct market research to assess the location's desirability and its potential.

Speak to our experts at BVS Mortgages and Financial Services LTD for advice on making the right moves and avoiding mistakes such as these.

Conclusion

By avoiding the mistakes described here, you are sure to increase your chances of successfully securing a commercial mortgage and achieving your business goals. Remember to plan ahead, gather the necessary documentation, and seek professional advice to process your application effectively.

Disclaimer: The information provided in this blog is intended for general knowledge and informational purposes only, and does not constitute financial advice.

Commercial mortgages are not regulated by The Financial Conduct Authority.

The products and services promoted here are not part of The Openwork Partnership offering and are offered on a referral basis. The Openwork Partnership accept no responsibility for this aspect of our business. These products are not regulated by the Financial Conduct Authority.

 * Approved by The Openwork Partnership on2 5.09.2024

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BVS Mortgages & Financial Services Ltd is an appointed representative of Commercial Finance Brokers UK Limited which is authorised and regulated by the Financial Conduct Authority (FRN 736199) for the purpose of consumer credit business. Commercial Finance Brokers UK Limited is registered in England & Wales under company registration number 06353973. We are a broker, not a lender. We work with the whole of market and may earn a commission from lenders, this amount varies between lenders