Commercial Mortgages - Using your Assets as Collateral

When you apply for a commercial mortgage, your chosen lender will require you to use the assets of the company as collateral on the loan. Lending money can be a risky business and even more so in certain industries. A responsible lender will therefore make some checks about the individual business before offering to lend the money you may have applied for.

One of these checks may be to analyse the value of the business and in particular, the value of the assets of the business as it will be they that the lender will enforce a sale of should the organisation default on the mortgage repayments. The assets can take many forms, but here we take a look at a few of the more common ones:

- Property - commercial mortgages can be acquired using either commercial property as security or by using residential/privately owned property, namely that owned by the directors or principles of the business. The lender will look at the LTV (loan to value) of the property in question together with the repayment history on the property.

- Plant and equipment - can play a very important role in making an application for a commercial mortgage. The working life of the plant and equipment in question, will determine their suitability for being used as collateral for a loan. For instance, a shipping company may be able to use the ships they already own, together with any plant and equipment they own and use to maintain the ships as collateral on a loan to purchase another ship. Items that have a much shorter working life are less valuable in terms of securing a loan for obvious reasons although collectively, you may be able to use them as part of the general inventory of the organisation. Such short term assets are likely to be of zero value long before any loan that you may look to secure on them has been repaid.

- Revenue - regular income may also be welcomed by a potential lender as collateral on a commercial mortgage. Weekly, monthly, quarterly and even annual revenues are likely to be used to repay the mortgage in the first place. The lender will analyse whether the growth of these revenues, at least in part, demonstrates a lower risk than a business where revenues are static or even falling.

What Do I Need To Do To Apply?

Enquiring about commercial mortgages is comparatively easy these days. There are many online brokers to go to. Simply complete the online form which may only take a few seconds and you may then receive a call from a commercial loan consultant who will guide you through the process, the vast majority of which may well be handled by the broker on your behalf.

In addition to completing, signing and returning a written credit agreement, you will almost certainly be required to provide supporting documentation. This may include things like:

- Financial projections

- A business plan

- Loan type, amount required, purpose and any projected profits you think you will generate as a result of the mortgage

- Company incorporation certificate

- Bank account information

- Credit references

- Company accounts (likely to be three years)

Dependent on the information you supply, you may find that you could have access to the funds in a matter of a couple of weeks.

Your broker may be able to help you with a whole host of questions you may have, so always ask if you need help. It's likely to be a big decision to go for a commercial mortgage but businesses do this every day and become more successful because of the opportunity to expand and improve their range and quality of services to their customers.