Commercial mortgages are complex and, unlike their residential equivalents, are not standardised financial products. Therefore, commercial mortgage approval times vary widely, but once an application has been submitted, usually average several months. This will depend on factors including the complexity of the loan (which will be affected by factors including the borrower’s circumstances and the nature of the property) and the lender’s internal processes and procedures.
Straightforward applications may include the refinancing of an existing owner-occupier mortgage, and could be completed in a few weeks, depending on the lender. Very complex loans, such as the use of a commercial mortgage to finance acquisition of a trading business, may take three to six months.
The process for getting a commercial loan is slightly different to a residential mortgage, as the fact that each application is closely scrutinised means that agreements in principle or mortgage pre-approvals are less common in the commercial space.
To minimise the time wasted by hopeless applications, most lenders will have a multi-step process, which involves prospective borrowers initially submitting abbreviated or unsubstantiated financial information (such as a statement of major assets and liabilities) to allow the lender to carry out some basic affordability and credit checks. If these are passed, and the lender indicates a provisional interest, the borrower will then provide documents to allow verification of their earlier declaration (such as financial statements), supporting and supplementary evidence and undergo a full assessment of their financial resources.
While the commercial mortgage application process is very intrusive, one of the advantages of the lack of standardisation is that each borrower is considered individually, and bad credit or a limited borrowing history may not be the deal-breakers that they would be in residential lending. Indeed, some commercial lenders will specialise in working with borrowers with non-standard credit history.
Due to the length of time it can take to obtain a commercial mortgage, a bridging loan may be an alternative option. Bridging loans are short-term financing intended to act as a temporary solution while longer-term finance is obtained. While bridging loans are more expensive than a traditional mortgage, they can typically be arranged in as little as a couple of weeks, and in some cases just a few days. You will need to have an exit strategy from the bridging loan – such as by demonstrating that you are a credible prospect for a commercial mortgage.
It is worth noting that commercial mortgages are not just secured on factories, offices or shops. It is possible to obtain a commercial mortgage on land – for example, farmland, with the intent of using it for agriculture. However, if you wish to build a premises on that land, you will need a different kind of commercial mortgage – a development loan.
Development loans, similar to bridging loans, are short-term financing that can be used for all kinds of real estate development, from a large housebuilder wishing to develop a residential estate to a small business (or even an individual) looking for funding to let them conduct a substantial renovation or refurbishment of their premises.
A commercial mortgage broker will use their knowledge of commercial mortgage lenders to recommend the best mortgage for your needs. If speed is an issue, their experience will be invaluable in determining which lender to approach, and helping you to gather the documents you’ll need for your commercial mortgage application.
Use our commercial mortgage broker directory to find the best-rated advisers in your area. Our directory allows you to quickly confirm which advisers are members of the National Association of Commercial Finance Brokers (NACFB)