What lenders look for in commercial mortgage applications

A commercial mortgage is a secured loan used to purchase a commercial property. When deciding whether to lend, lenders assess several key factors to determine the borrower’s creditworthiness and the overall loan risk. Each lender may have slightly different criteria, but generally, they look at the following:

Business and financial information

• Business history and type: Lenders want to know about the nature of the business and its industry. Some industries may be considered riskier than others.
• Financial statements: The lender may review the business’s financial statements to assess its financial health and stability.
• Tax returns: They may examine the business’s tax returns to verify income and ensure consistency with the financial statements.
• Income projections: The lender may want to know the projected income to determine whether the business can cover the cost of the loan.
• Business experience: Lenders may consider the borrower’s industry experience. A successful track record increases the borrower’s credibility.

Creditworthiness

• Credit history: Lenders may review the credit history of the business and its owners. A strong credit history demonstrates responsible financial management and increases the likelihood of loan approval.
• Credit score: A higher credit score indicates a lower credit risk and can lead to better loan terms.

Collateral

• Property value: Lenders will assess the market value of the commercial property the mortgage is required for.
• Loan-to-value (LTV) ratio: The loan amount divided by the appraised property value is the LTV ratio. Lenders typically prefer a lower LTV ratio, as it reduces their risk.

Legal and regulatory compliance

• Legal standing: Lenders will want assurance that the business is in good legal standing, has all necessary licenses and permits and complies with relevant regulations.

Overall, lenders will want to know that the borrower can repay the loan and that the purchased property provides adequate security.

Using a commercial finance broker to help with a commercial mortgage application can streamline the process and improve the probability of success.