How to get a commercial mortgage, step by step

Step 1: decide what the lender will be assessing

Start by working out which kind of commercial mortgage you need. For premises your own business will occupy, the lender assesses the business: its accounts, profits and how comfortably they cover the repayments. For a let property, the lender assesses the rent, the tenants and the leases. For a semi-commercial property, check whether the lender treats it as commercial or residential, because that changes the criteria. Our guide to what a commercial mortgage is sets out the differences.

Step 2: gather the documents

Lenders usually ask for:

• Details of the property: address, tenure, use, floor areas and condition
• The purchase price or current value, and any existing borrowing
• For owner-occupied premises: business accounts, recent management accounts, bank statements and any projections
• For let property: the leases, a tenancy schedule showing rents and lease end dates, and any information on the tenants
• Details of the borrower: the company, its directors and shareholders, and a statement of their assets and liabilities
• Proof of your deposit and where it has come from

Having these ready before you approach lenders avoids delay and lets a lender give firmer indicative terms.

Step 3: compare lenders and obtain terms

Commercial lenders range from high-street banks to specialist and challenger banks, building societies and non-bank lenders. They differ on the property types and locations they accept, how they treat tenants and lease length, their appetite for newer businesses, and how they price fixed and variable rates. A lender that is cheapest for one case may decline another.

Lenders issue indicative terms, sometimes called a decision in principle or heads of terms, once they have reviewed the case. These set out the loan, rate, fees and conditions, subject to valuation and underwriting. Our guide to decisions in principle explains what they do and do not commit a lender to.

Step 4: valuation

The lender instructs a commercial valuer from its panel, paid for by the borrower. The valuer inspects the property and reports on its market value and, for let property, its rental value and the security of the income. Commercial valuations usually take longer than residential ones, especially for larger or specialist buildings.

If the valuation is lower than expected, the loan may be reduced. Where a property needs work or is empty, the valuation may not support the mortgage yet, which is when a bridging loan is often used first.

Step 5: underwriting, legal work and completion

The lender underwrites the case in full, reviews the valuation and issues a formal offer. Your solicitor and the lender's solicitor then review the title, searches, leases, any guarantees and the loan documents. Commercial legal work can take some time where there are several leases to review or the title is complex, so instructing an experienced commercial property solicitor early helps. Once the conditions are met, the loan completes and funds are released.

Using a bridge first

If the property needs refurbishment, is partly empty, is being bought at auction or must complete faster than a term lender can manage, a commercial bridging loan can fund the purchase now. For premises your business will occupy, see business premises bridging loans. Planning the commercial mortgage before taking the bridge makes the exit more reliable: our guide to refinancing a bridging loan onto a mortgage covers the timing.

Instant Quotes compares bridging lenders rather than commercial mortgages. If you need short-term finance to buy or improve a commercial property first, you can compare bridging lenders on Instant Quotes, or ask us to search the wider market for a term loan.

Common questions

This guide is for general information only and should not be treated as legal, tax or financial advice. Lender requirements depend on the property and your circumstances.