Commercial Lenders’ Criteria
Commercial lending is a financial loan for business purposes generally to grow the business or aid cash-flow and consolidate debts. Traditionally a bank may generally loan up to 70% LTV (loan to value) so the business would put down 30% as a deposit. The bank will usually want to see a lot of business records including trading accounts, profit and loss, balance sheet, monies outstanding, monies owed, trading projections, bank statements and a business plan. The bank may request that the directors of a company if it where a limited company put up their own houses as security to the debt. A minimum track record of trading normally three years will have to be demonstrated.
Business loans may be regarded as higher risk than residential lending this is due to the fact that a very high percentages of new business will not be trading after five years and even after five years many businesses cease trading. Running a business is high risk and very vulnerable to outside influences for example European regulation, red tape, competition, changing markets and channels of distribution.
A good example of this is over the last few years trading over the internet has dramatically increased and therefore has seriously adversely affected shops’ trading figures. Because business is risky great care and business research should be conducted before committing to commercial finance to ensure success or reduce the risk of failure. Another example is how the large supermarkets have severely affected local shops’ trade, with massive buying power and household branding. Generally retail or shop outlets will operate their business premises under a leasehold agreement between a tenant and landlord. This should not be confused with a buy to let which also will have a tenant and landlord agreement.
More recently commercial lending has shown to be a developing industry with the arrival of new lenders whom have a border view on lending to business. For example they allow self cert, 85% LTV, no trading figures or track record and adverse credit. This though comes with a price of higher interest rates and longer tie in periods.