Smoothing the Process of Commercial Lending

Smoothing the Process of Commercial Lending

In the current climate with not enough credit to go around, lenders are generally in a stronger bargaining position in terms of the level and extent of security they require.

Blocks have acted for a large commercial lender for over 10 years and in our experience, the more well-informed and well-prepared an applicant, the more likely they are to succeed and the quicker and cheaper the process will be.

So what level of knowledge and preparation is required?

1.   Identify the assets you are able or prepared to offer as security, what due diligence needs to be carried out?

  • Does the property have the correct planning permission, building regulation approval and consents?  Is your documentation up to date in respect of recent changes in legislation? Does your property have proper access, rights of drainage, are there any problematic covenants?
  • If your property is leasehold, is the current lease compliant with standard requirements?  Is the remaining term of the lease sufficient for security purposes? Does a management company exist, if so, do you have details of the company, their service charge accounts and other dealings, as these will be required by your lender.
  • Who is in actual occupation of the property and on what basis? Are the terms of their occupation likely to deter or be problematic to a lender?
  • Do you need to obtain consent from interested parties, such as an existing mortgagee, landlord, spouse or partner? If the consent of a landlord is required, consider the additional time and costs to obtain this.  Note that a spouse or partner may be required to take independent legal advice.

2.   Additional Security?

  • Be prepared for a lender to request company director(s) to stand as guarantor(s) – consider the maximum level you are prepared to underwrite.
  • Be prepared for a lender to request life insurance policies be put in place in the case of an individual borrower(s). Read a lender’s terms and conditions carefully to ensure that your chosen policy will meet with that lender’s approval.
  • Lenders often require an investment lease to be in place throughout the term of the mortgage.  What terms of an investment lease will be acceptable? Is your company the tenant – as director and mortgagee, consider any potential conflict of interests.

3.   Purchase of Property through a Pension Scheme

  • Lenders generally speaking have specific requirements in respect of pension funds. In particular, if pension trustees are to hold the property on trust for the benefit of two pension funds, consideration will need to be given as to the relationship between the two pension funds.
  • In addition, trustees of a pension fund will have their own requirements in respect of the mortgage. Check these before approaching a lender.

What can be done in advance?

  • Assemble your professional team in advance – give clear instructions, authorities and information.
  • Ensure your lender’s valuation comes up to scratch at an early stage.
  • Above all you should be transparent in disclosures and prompt in responding to enquires.  Lenders have other suitors waiting and mortgage offers can expire quicker than expected.

The above is general comment only and individual advice should be taken

Julie Hoy: For more detailed information or for advice:
email: julie_hoy@blockslegal.co.uk