What a lender will ask of your business

A trading business buying its own premises gets asked about its history, its accounts, its deposit and the people behind it. See what each of those questions is really about before you sit down with a lender or broker.

The risk a lender is weighing

A lender looking at a loan to buy a business's own premises is really pricing two separate risks at once: the building, and the business that has to keep paying for it. A residential mortgage is priced mostly against a salary and the value of the house. Here, the loan only gets repaid for as long as the business keeps trading and keeps turning a profit, so a lender spends a good part of its enquiry working out how likely that is. See How a commercial mortgage differs from your home loan for the practical differences this produces in deposit, term and rate.

The business as the source of repayment

A business can have a strong year and a weak one. A lender looks across several years of trading, because one good year says little about whether the income will hold up for the length of the loan. Profitability, consistency and the pattern behind the numbers all feed into the same question: can this business service the repayments from what it actually earns.

What the lender can fall back on

A lender also wants to know what happens if the income does not hold up. The deposit reduces how much is at risk from the outset. The building itself is valued as security, because its worth to the lender depends on what it could be sold for if the loan were not repaid. Directors are usually asked to stand behind the loan personally as well, through a personal guarantee, which is explained in full in The personal guarantee on a premises loan.

Seen this way, every question a lender asks is pointed at one of two things: whether the business can pay, or what the lender can recover if it cannot. Working through those questions before a conversation with a lender or broker means fewer surprises once one starts.

Before you speak to a lender

Trading history and accounts: what a lender checks

Lenders start with the business's own record before they look at the deposit or the building. These are the points most checked.

  • Length of trading history

    A lender wants to see how long the business has been trading under its current structure.

  • A full set of filed accounts

    Lenders ask for the accounts filed at Companies House or with HMRC, covering more than one year wherever the business has them.

  • Profit after the owner's own pay

    Lenders look at profitability after directors' salaries and dividends.

  • Profit trend across the years available

    A lender compares one year against the last to see whether profit is rising, steady or falling, and will ask about the reason behind any fall.

  • Consistency between turnover and bank statements

    Where accounts and business bank statements are both requested, a lender checks that the trading pattern in one matches the other.

  • Any change of structure or ownership

    A change of legal structure, a change of directors, or a recent incorporation is something a lender will ask the business to explain.

  • Existing business borrowing

    Any loan, lease or overdraft already held by the business is set against its profit when a lender works out what it can also afford to repay.

These are the records a lender typically asks for. What any individual lender treats as sufficient is a decision only that lender can confirm.

Before you apply

The deposit: how much, and where it comes from

Before the amount is agreed, a lender wants to know the deposit is really there and where it has come from.

  • The deposit as a share of the purchase price

    Commercial lenders set this higher than on a home mortgage, so it is worth knowing the proportion you are working with before you look at properties.

  • Business savings or retained profit

    Bank statements or accounts showing the funds sitting in the business over time are the usual evidence.

  • A director's personal funds

    Where a director is putting in money personally, a lender will usually want to see where it came from, not just that it has arrived.

  • A gift from a third party

    A lender may ask for a letter confirming the money is a gift and not a loan that has to be repaid.

  • Funds released from another property or asset

    A completion statement or sale document showing the source of the proceeds is the kind of evidence a lender looks for.

  • Borrowed funds used as deposit

    Lenders generally want to know whether any part of the deposit is itself borrowed, since this changes the business's total debt position.

A lender decides what counts as acceptable evidence in each case; this sets out the questions to expect, not a guarantee of the outcome.

The directors themselves

What lenders ask about the directors personally

A lender looks at the directors as closely as it looks at the company, because the business's track record only tells part of the story.

  • Personal credit history for each director

    Lenders typically check each director's own credit file, not just the company's, before deciding whether to lend.

  • Existing personal borrowing

    Mortgages, loans and credit commitments held personally by directors are usually weighed alongside the business's own debts.

  • Other directorships and their track record

    A lender may ask about other companies a director runs or has run, including whether any of them failed or were wound up.

  • Any history of county court judgments or insolvency

    A CCJ, an individual voluntary arrangement or a past bankruptcy against a director is something a lender will usually want explained.

  • Age and the term being requested

    A director's age against the mortgage term can affect what a lender is willing to offer, particularly on longer terms.

  • Willingness to give a personal guarantee

    Most lenders will ask one or more directors to guarantee the loan personally, on top of the company's own liability.

Read the personal guarantee page to see what that commitment involves before a lender raises it with you.

What the valuation on the building covers

A lender does not take your word, or the seller's, for what the building is worth. Before any offer is confirmed, a surveyor instructed by the lender inspects the property and sets a value of their own. That figure is what the loan is actually based on.

What the valuation looks at

The surveyor is working out what the building would fetch if it had to be sold. That means the condition of the structure, the state of the roof, services and any specialist fittings, and how easily the property could be let or sold to someone else if your business were not the buyer. A building built or adapted for one particular trade, such as a cold store or a workshop with heavy machinery bolted to the floor, is harder to resell and can be valued more cautiously for that reason.

What can bring the figure down

  • Repairs the building needs now, which the surveyor treats as a cost to be deducted
  • A use so specialised that few other businesses could occupy the building without alteration
  • A short lease remaining on the land if the property is leasehold
  • Planning restrictions that limit what the building can be used for next
  • A location with few recent comparable sales nearby, which gives the surveyor less to value against

Any of these can mean the lender's valuation comes in below the price you have agreed, and the loan on offer is set against the lower figure. That gap has to be covered from your own deposit, so it is worth knowing before you make an offer on a property. The rent or buy calculator lets you see how a lower loan-to-value changes the deposit and monthly repayment, and the lender directory sets out what different lenders publish on loan-to-value and acceptable property types.