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Commercial Mortgages with Bad Credit

How can you get a great commercial mortgage if the business, owners, or directors have an adverse credit history? Here we explain how to mitigate bad credit issues and get your loan approved.

Almas Uddin
Almas Uddin

Founder and Mortgage Advisor

Almas Uddin2023-05-09
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Commercial Mortgages with Bad Credit

Businesses often assume that because they have bad credit, it will be impossible to secure a commercial mortgage. The Revolution team also receives regular enquiries from companies who have been turned down for mortgage finance and hadn't realised that a minor credit issue was going to cause such a problem.

Here we explain the ins and outs of bad credit rating and commercial lending, and why working with an experienced broker is key to finding the mortgage lending you need.

For more help and advice, contact the mortgage brokers team on 0330 304 3040 or via email on [email protected].

Difficulty in securing financing

Securing financing for a commercial mortgage with bad credit is tough. Lenders look at your credit report score to judge how risky it might be to give you a loan. With a low credit rating, many lenders see this as a red flag and may hesitate to offer you financing.

They fear that borrowers with bad histories of managing debt might not pay back the commercial mortgage.

To make matters more challenging, the terms offered by commercial mortgage lenders willing to take on bad credit applicants are often less favorable. Expect higher interest rates and stricter loan terms compared to those with better credit scores.

This means borrowing costs surge, making it harder for businesses to afford their desired property or investment. A specialist mortgage broker can help navigate these hurdles, but applicants must prepare for an uphill battle in convincing bad credit mortgage lenders they're worth the risk.

Tips for Securing a Commercial Mortgage with Bad Credit

Landing a commercial mortgage with bad credit can seem tough, but taking the right steps can lead you closer to approval. Be proactive by checking your score and exploring various loan options to find a good fit for your financial situation.

Check your credit score

Understanding your credit score is crucial for securing commercial mortgages with bad credit. This number reflects your financial history and influences lenders' decisions. A higher score can lead to better interest rates and terms.

Check it annually through official websites to stay informed.

Fixing errors on your report could improve your score over time. Pay attention to any incorrect charges or outdated information that might be dragging it down. After checking, the next step involves getting pre-qualified for a loan, which gives you a clearer picture of what you can afford.

Get pre-qualified for a loan

Getting pre-qualified for a loan is a crucial step in obtaining bad credit commercial mortgages. It gives you an idea of how much money specialist lenders might be willing to offer, based on your financial history and current income.

This process also helps pinpoint what interest rates you might face, enabling better planning for your business's future.

Lenders accept your demands typically after they review your credit score and evaluate your debt-to-income ratio during pre-qualification. Even with bad credit, showing steady income can improve your chances of securing a commercial mortgage.

This early step doesn't guarantee approval but positions you as a serious buyer in the eyes of sellers and agents.

Maintain a steady income

Maintaining a steady income is critical for securing a commercial mortgage, especially with bad credit. Lenders want to see that you have reliable cash flow to cover your loan payments.

Show them consistent earnings from your business or job. This proves you can handle the financial responsibility of a mortgage.

Look for ways to boost your income if necessary. Consider expanding your services, taking on additional projects, or finding other streams of revenue. A solid financial foundation makes you more attractive to lenders and might help offset the impact of bad credit mortgages.

Consider alternative forms of financing

Exploring different financing options can open doors for those with poor credit seeking a commercial mortgage. Business owners might look into private loans, which are often more flexible about credit scores.

Some may find crowdfunding platforms appealing as they allow multiple investors to fund the project, relieving some financial pressure. Another avenue is finding partners willing to invest in the property or business in exchange for a share of ownership.

Hard money loans present an option for short-term needs, although their interest rates tend to be higher. These loans focus more on the property's value rather than the borrower's credit score, making them suitable for renovation projects or quick purchases before refinancing.

By understanding these alternatives, individuals can better navigate their choices and increase their chances of securing funding. This approach ensures that even with less-than-perfect credit, there are viable pathways to obtaining a commercial mortgage.

Moving forward, let’s discuss how maintaining steady income influences loan approval prospects.

Can My Business Get a Commercial Mortgage with a Bad Credit History?

Contrary to popular belief, yes you can - and the right lender all depends on whether the business itself has had issues, or whether the business owner or directors have experienced the adverse credit mortgages.

The commercial investment mortgages market is enormous, and multiple specialist commercial mortgage lenders can offer lending on terms that are adapted to your circumstances.

As a whole-of-market broker, Revolution Brokers can recommend any lender and any product in the UK, so there is always an option!

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Is it Possible to Get a Commercial Mortgage if my Credit File Shows Defaults?

A default isn't as severe as bankruptcy, for example, but it can mean that a mainstream lender will automatically refuse your application.

If your default was within the past year, it narrows the number of lenders to apply to, but there are still specialist lenders who can help.

The longer ago your credit issues, the easier it is to find competitive lending. We can also offer advice about ways to make a bad credit commercial mortgage application more attractive and lower risk for lenders.

Are There Business Mortgages for Applicants with Repossession on their File?

While repossession is severe, you can find commercial mortgage lenders who will take a case-by-case view on whether to approve your application.

If the repossession was in the last year, it is vital to consult an expert bad credit broker who can negotiate terms with a lender.

How Can I Get a Commercial Mortgage with a Low Credit Score?

In many cases, commercial lenders aren't concerned with a credit score as such but will be more interested in whether adverse credit issues are showing on your file.

Commercial lending is more flexible than in residential mortgages, so there is always room to negotiate and leverage business performance to mitigate the risk of a bad credit scenario.

How Can I Get a Commercial Mortgage if I Have Bad Credit?

The best option is always to work with a professional, independent broker who can evaluate all other lending criteria as well as the bad credit issues to work out which lenders are best placed to approve your lending.

For example, you might be able to offer a larger deposit, or additional security, which will reduce the risk and ensure that you comply with the eligibility requirements of a specialist bad credit lender.

What are the Other Important Eligibility Factors In Addition to a Credit Check?

Credit checks are one of many assessments that a commercial mortgage provider will carry out. So if you have bad credit but can meet every other criterion, you have a much better chance of negotiating competitive rates.

  • Business profits - lenders will want to check your operating profit levels and ensure that the company can afford to keep up with the mortgage repayments.
  • Deposit - the higher the deposit, the lower the risk. Most commercial mortgages require between 20% and 40% as a deposit, but you can always offer a higher deposit or additional security.
  • Trading history - the longer you have been trading, and the stronger your industry experience, the better your application will be.
  • Business projections - if you can demonstrate viable business plans and forecasts, this may offset any concerns raised around bad credit issues.

Which Broker Can Help Me Find a Commercial Bad Credit Mortgage?

Brokers are essential in this scenario, as it can be impossible for a business to know which lender to apply to, or understand where the best rates are available.

Dealing directly with lenders can also be damaging, as if you apply to a lender whose criteria the business doesn't meet, they may still run hard credit checks. These appear on your credit file and can be detrimental to your credit score, even if the lender running the checks rejects your application.

Give the Revolution Brokers team a call if you need to find a commercial mortgage in a bad credit scenario.

What Does a Non-Status Commercial Lender Mean in Mortgages?

This sort of lending should be a last resort and not a viable alternative to a reputable lender recommended by your broker.

Non-status commercial mortgages are offered to businesses unable to meet the requirements of a mainstream lender. However, this product is FCA regulated and has been clamped down on, so are few and far between.

Our advice is always to consult an expert before going ahead with a non-status commercial mortgage as there are very likely to be more competitive products available.

Professional UK Support with Bad Credit Business Mortgages

If you've struggled to find commercial mortgage lending, or are concerned about the impact of bad credit on your application, give us a call.

The Revolution team are bad credit experts and will ensure that you get the best deals on the market. Get in touch at 0330 304 3040 or via email at [email protected].

Almas Uddin
Almas Uddin

Founder and Mortgage Advisor

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FCA disclaimer

The content included in our articles, blogs, web pages and news publications is based on information accurate at the time of writing. Note that policies and criteria can change regularly throughout the UK mortgage lending market, and it remains essential to contact the consultation team to receive up to date guidance. The information included on the Revolution Brokers site is not bespoke to any circumstances or individual application scenarios and therefore is not intended to be used as financial advice. The content we share is designed to be informative and helpful but cannot be relied upon to provide individual advice relevant to your mortgage requirements. All Revolution team members are fully qualified, trained and experienced to provide mortgage advice of an independent nature.

We collaborate with lenders and providers who are regulated, authorised and registered with the Financial Conduct Authority (FCA). Should you require specific mortgage borrowing types, some products such as buy to let mortgages may not be FCA regulated. The Revolution team can provide further information about regulated and unregulated lending as required. Please remember that a mortgage is a debt which is secured against your home or property. Your home can be at risk of repossession if you do not keep up with the repayments or encounter any other difficulties in managing your mortgage borrowing responsibly. This also applies to any remortgage or home loan secured against your property, including equity release products.

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