Last reviewed on 24th July 2023 by Martin Alexander (Mortgage Advisor)
Attempting to secure a commercial mortgage with bad credit is difficult, but it is possible. Several commercial lenders will consider applicants with adverse credit. In some cases, applications can even be approved in as little as two days!
This article will look at the different types of issues that can affect your credit report and your mortgage. So, what is the best way to get a commercial mortgage with bad credit? Let’s find out!
- How to get a commercial mortgage with bad credit
- How financial circumstances can affect your application
- Criteria of your commercial project
- How severe are your credit issues?
- When did your adverse credit occur?
- Preparing a commercial mortgage application
- Commercial lenders that accept bad credit
- Advice from a specialist commercial mortgage advisor
How to get a commercial mortgage with bad credit
Securing a commercial mortgage with bad credit largely depends on:
- Your current financial circumstances
- Criteria of the commercial property/project
- The severity of your bad credit
- The dates of your bad credit
- The structure of your mortgage application
- The lender you approach
Having bad credit will make it harder to get a commercial mortgage, but that doesn’t mean it isn’t possible. There are a number of bad credit mortgage lenders that specialise in commercial finance. That being said, they’ll have assessment criteria that you’ll need to meet.
Applicants have varied criteria, so speaking to a specialist commercial broker with experience with adverse credit mortgages is recommended. A commercial advisor can then assess your situation and provide some viable options.
How financial circumstances can affect your application
Once you’ve applied for a mortgage, your lender will assess your financial circumstances. This article is about applying for a commercial mortgage with bad credit, so you’d assume you have poor credit, but this isn’t always the case.
An individual can have a great credit score but have a very low income. On the other hand, an applicant can have a bad credit score but show a steady and secure income.
Even if you’re not as financially stable as you’d like, some lenders may assess the potential income that your proposed commercial project may generate.
To summarise, financial circumstances will vary for each applicant. Lenders will consider your income, but they’ll also consider the reasons for your commercial loan. This brings us to our next point.
Criteria of your commercial project
Lenders will assess the potential income that your commercial project can generate. If the numbers make sense to the lender, they give credibility to your application.
There are many possibilities for the criteria for your commercial project. This could be anything from simply purchasing a commercial property, to a property with attached residential flats, development finance and so on.
The following commercial projects are possible with bad credit:
- Commercial buy to let
- Industrial units and factories
- Retail units
- Events and banqueting halls
The criteria of your commercial project will either add or remove lenders you can approach. It’s vital to get the numbers right, and if you’re still unsure, our commercial specialists can always go through this with you before applying.
How severe are your credit issues?
Bad credit is a field of its own. Some credit issues are a lot more severe than others. You may only have a CCJ of £100 or have been repossessed two months ago!
Having severe credit issues will make it harder to obtain commercial finance, but it may still be possible. If you’ve got light adverse credit issues such as late payments, you should have a choice of multiple lenders.
As bad credit comes in different shapes and sizes, it’s best to speak to a mortgage broker specialising in adverse credit. A specialist broker can then give you tailored mortgage advice based on your circumstances.
When did your adverse credit occur?
The dates of your credit issues will affect a lender’s decision on whether they’d offer you a commercial mortgage. A lender will assess the severity of your credit issues, but the dates also play a vital part. This is because a recent default may be considered more severe than a historic repossession.
Generally speaking, credit issues that happened over six years ago shouldn’t affect your application. Most lenders will only check your credit history up to the last six years.
Be warned, some lenders will ask you to declare certain credit issues, such as whether or not you’ve ever had an IVA. Some lenders will also flat-out decline you if you’ve ever been bankrupt.
It’s always best to download your credit report online. Lenders will check your credit file, so knowing what’s on there is a smart move. Your credit score may not even be as bad as you think! Also, don’t worry about leaving a footprint, as downloading your credit file is harmless.
There are several specialist adverse credit lenders currently in the market. We’ve personally placed commercial mortgages for applicants with different credit issues and approved them. This doesn’t mean to say it’s easy. Having a structured approach to your mortgage application can make all the difference.
Preparing a commercial mortgage application
In all honesty, a specialist commercial advisor is probably the best option for ensuring your application is structured correctly. Often enough, advisors can also liaise with underwriters should there be any discrepancies with your application.
Commercial specialists submit mortgage applications regularly. A residential mortgage application is very intricate, and a commercial mortgage application is even more so! Throw bad credit into the equation, and your application needs to be watertight. Utilising the skills and experience of a specialist mortgage broker can save you time, money and frustration.
Commercial lenders that accept bad credit
Each lender has its own criteria, which makes them better suited to certain applicants. Depending on your circumstances, there will be better-suited lenders than others.
Applying with the best-suited lender is crucial, especially when applying for a commercial mortgage with bad credit. This is because a commercial mortgage is similar to a business proposition.
The numbers need to be attractive to lenders. In addition, the fact that you have bad credit will make you appear as high risk. A commercial lender will generally look at the balance of your proposition in relation to your bad credit.
An experienced broker should know each lender’s criteria. This enables us to place your mortgage with the right lender in the first instance. Commercial lenders will also lend on particular projects and not others, so do plan your approach.
Advice from a specialist commercial mortgage advisor
It’s important to note that you may be offered a commercial mortgage at a higher-than-average rate. This is due to having bad credit.
The past years have seen an increase in bad credit mortgage lenders and, as a result, bad credit mortgage brokers. As this has made the adverse mortgage field more competitive, lender and broker fees have also become more competitive.
When adverse credit mortgages were scarce, fees were astronomical, with unruly brokers taking advantage of applicants facing financial hardship.
Taking a commercial mortgage with credit problems can boost your credit score. If you consistently repay your mortgage on time, it will positively influence your credit score.
You could earn from your commercial project and turn your credit score around! This could lead to further investments based on willing lenders to finance your future projects.
A great mortgage advisor will always offer you impartial advice. They should only offer to place your application if you meet a lender’s criteria. The last thing you’d want is a broker placing every application they’re getting, as it simply isn’t good practice! You’re ultimately in charge of your finances, so ensure you’re financially prepared to avoid further credit issues.
About the author
Martin is a senior mortgage advisor and has held a CeMAP qualification for over 15 years while also completing an MBA in Global Banking & Finance.