[3 mins read]


In the same way the High Street shops have been sidelined by their online competitors, so too have the UK’s High Street Banks when it comes to commercial lending and the new wave of non-bank competition.

According to the Cass Business School’s annual UK CRE Lending Report, for the first time last year, the biggest chunk of lending within the commercial investment market came from non-bank lenders and non-UK banks, who claimed 55.8% of the £49.6bn market.  A huge piece of the commercial pie, and a dramatic shift for both the UK’s domestic banks and their loyal borrowers.

It’s fair to say that post-2008 crash and even in the last couple of years, the commercial lending market has fragmented substantially.  There are now dozens of lenders, and without expert guidance it’s a tricky market to browse, let alone shop.


Here’s our definitive guide to borrowing in the commercial mortgage market.


What is a commercial mortgage?

A commercial mortgage is a loan against a commercial property that is owned by an investor to generate income (or capital appreciation), or by an owner occupier to use as their place of work.  This encompasses everything from retail and office space, student accommodation, hotels and care homes, to industrial warehouses, schools, universities, pubs, restaurants and hospitals.


How is a commercial loan calculated?

Commercial loans are calculated using the net income that a tenant produces, or the net income of the business if it is owner occupied, to calculate an affordable loan amount.  In essence, the loan works backwards; operational expenses are deducted from the Gross Income, to assess the Net Income of the asset.  The Net Income is then tested against stress rate and amortisation profile to determine the level of loan affordability.


Which lenders should I consider?

Whilst all lenders will underwrite a commercial loan using the methodology described above, they will all have different rules, so it’s hugely important to shop around to uncover the best deal for you.  Borrowers’ personal circumstances are less relevant for commercial loans, but you’ll find huge variations when it comes to other criteria.


For example, some may discount income from tenants or ignore it completely if they think they are not a strong covenant.  They will also have different requirements for how much cover is needed and the rate they want to stress at to decide the final loan, so sticking with a tried and tested lender may mean missing out on a better deal elsewhere.


Here are the types of lender we recommend talking to before choosing your loan:


Lender Type Pros Cons Need to know
Mainstream banks Cheaper interest
Tracker (base or Libor) or fixed rates normally available
Low average LTV : 60%-65%

Amortization profile of 15-20 yrs (although may allow 12 months interest only)

Slow processing and decision-making


May need company bank accounts to move as part of the deal

Institutional lenders

e.g. pension funds/insurance companies

Normally cheaper than High Street banks, especially on fixed rates

Long-term fixed rates as standard (5-40 yrs)

No PGs (normally)

Low average LTV : 60%-65%

Less likely to offer tracker rates (but can)

Prefer amortising loans

Slower processing

Normally £10m is min. loan.  More choice from £20m+
Challenger banks


High LTV : up to 70%-75%

Offer interest only repayments, so good for maximising cashflow

Faster decision-making and processing

Higher rates



Will normally be more flexible with their underwriting approach
Debt funds  High LTV : up to 70%-80%

Significant in-house expertise for large & complex loans

Faster decision-making and processing

No PGs (normally) 

Higher rates


Minimum loan is £10m

Happy to lend globally so gives more flexibility for multi-jurisdiction clients


Mezzanine Enable additional borrowing power up to 80%-85% dependent on income


More expensive, but with the lower cost of the senior debt, the blended rate between the two products can still be very attractive

Additional admin by dealing with two lenders

Normally specialist funds, who may also consider whole loans


What else do I need to know?

Some lenders might request a personal guarantee before signing off on a commercial mortgage, although non-banks are less likely to.  This is your legal promise to repay loans issued to your business, so if the business becomes unable to repay a debt, you must accept personal liability.  Essentially, you can’t just jump ship.  The Industry average for a personal guarantee is 15%-25% of total loan amount, but if you’d prefer to deal with lenders who don’t request one, a mortgage expert will be able to advise you regarding the ones to watch.

To see how our clients have benefited from shopping around for the right commercial mortgage, you can read our case studies here and here.


For more advice on securing Commercial Finance, please give one of our experts a call on 0207 846 0184 or email info@propertyfinancegroup.com





November 2019