Commercial lending is underwritten by people, not by a credit score. That is the single most useful thing to understand about it. A well-prepared application with clear figures and a coherent explanation genuinely moves faster and gets better terms than a thin one — which is not true of residential lending, where the computer decides.
The five things assessed
1. Serviceability. Can the business afford the repayments? Lenders look at profit before interest, tax, depreciation and amortisation, and check it covers the debt by a comfortable margin. They will stress-test at a higher rate than you are paying.
2. Security. What is the lender lending against, and what would it recover if things went wrong? For property lending this is the valuation — and often the vacant possession figure rather than the investment one. See how commercial valuations work.
3. The people. Your track record, industry experience and personal credit history. Directors normally give personal guarantees, so your own position is assessed alongside the company's.
4. The proposal. Why do you want the money, what will it achieve, and does it make sense? A purpose that strengthens the business reads very differently from one that plugs a hole.
5. The exit. How does the lender get repaid — from trading profit over the term, from a sale, or from a refinance? Every lender wants this answered explicitly.
What to have ready
- Two to three years of full accounts, prepared by a qualified accountant
- Recent management accounts, particularly if the current year differs from the last filed one
- Business bank statements, usually six to twelve months
- A cash flow forecast, where the borrowing changes how the business operates
- Aged debtors and creditors, for trading businesses
- Details of existing borrowing — loans, leases, invoice finance, director's loans
- Personal information for each guarantor — assets, liabilities, credit history
- Property details, including leases and tenants for an investment purchase
Assembling this before you approach a lender rather than in response to their requests typically saves two to three weeks.
What genuinely improves the outcome
Explain the numbers, especially the bad ones. A dip in profit with a clear explanation — a one-off investment, a lost contract since replaced, a deliberate reinvestment — is treated far better than a dip left to speak for itself. Underwriters read these. Automated systems do not.
Be consistent. Figures in the accounts, the forecast and the application should reconcile. Discrepancies invite scrutiny of everything else.
Show you understand your own business. Being able to explain your margins, your seasonality, your customer concentration and your main risks builds confidence in a way a spreadsheet cannot.
Address the obvious objection first. If there is a weakness — customer concentration, a loss-making year, a director with credit problems — raise and explain it. Discovered later, it looks like concealment.
Keep the bank account clean. Returned direct debits and unauthorised overdraft use in the last twelve months are read as a warning sign, whatever the accounts say.
Personal guarantees
Expect to be asked. Most commercial lending to smaller companies requires directors to guarantee some or all of the borrowing.
Two points worth taking seriously:
Understand the extent. Is it capped at a proportion of the loan or unlimited? Joint and several with other directors, meaning any one of you could be pursued for the whole amount, or several only?
Take independent legal advice. Lenders frequently require it, and it is sensible regardless. Personal guarantees are enforceable and your own assets are at stake.
Timescales
Six to twelve weeks is normal. The stages that take the time are the commercial valuation, manual underwriting, and legal work — particularly where leases, licences or environmental matters are involved.
Start earlier than feels necessary. If there is a hard deadline — an auction, a lease expiry, a seller's date — say so at the outset, because it may change which lender we approach.
Why a broker is worth it here
Commercial lending has no comparison sites and no published criteria in any usable form. Appetite varies by sector, property type and deal size, and it changes as lenders' books fill.
A lender enthusiastic about industrial units last quarter may not be this one. Knowing where a case will actually land, and presenting it in the way that lender wants to see, is most of the value.
Call 0116 277 7536 or see commercial mortgages in Leicester.
More guides: commercial finance guides for Leicester.
