The Commercial Loans market has developed into a £10 Billion market in the UK alone. Traditionally 80 % of all commercial finance was dealt with by the individual or companies Personal Bank. This trend is changing however as more Commercial lending organisations have come in to the market. Underwriting has in many cases been relaxed with flexibility seen as a key ingredient in an investor's choice of commercial finance.

Firstly it is important to establish exactly what we mean by commercial finance. Property is ultimately seen as commercial if it enjoys a commercial use under the 1987 use classes order. The other main factor is determined by a properties usage. Clearly where a property is ones main residence, it will come under residential use category and loans and mortgages will be under residential lending criteria. The Buy to let market is essentially commercial property as people invest in property for commercial gain. However despite this sector not being protected by the MCCB (Mortgage Code Compliance Board), lending has far more similarities with residential than it does with commercial finance. Most people would accept that where individuals own 3 or more properties under a Buy to let basis, they are effectively corporate investors and lenders will assess their portfolios under commercial finance underwriting. In this regard, many Buy to let lenders will only lend on a certain number of flats within a building if they are to treat it as residential and not commercial.

Semi Commercial finance, an example being where you have a high street shop with 2 residential flats above is largely dealt with under the same rules as that of commercial, more so than residential. Indeed as with the 1993 Leasehold Reform Act when giving individuals the rights to extend their leases there is a requirement that the building has a 10 % or less commercial content. Clearly with most semi-commercials this is not the case which is why it is treated as commercial.

There are many areas within commercial finance including the following; Offices, Shops, Warehouses, Public Houses, Restaurants, café's, Night Clubs, Hotels and guest Houses, Care Homes, Garages, Buy to let, and Semi Commercial. Each of these areas are very specialised with differ rent criteria and as with the residential lending market, different banks preferring to lend on certain sectors.

Generally speaking Banks prefer lending the cleaner more established uses where the companies who they are lending to are operating in more stable industries and environments and who are unlikely to go in to liquidation and loose the financial institution a large amount of money. Conversely unless companies or indeed in dividable can show a proven track record of success over a sustained period banks will be very nervous when lending funds in Night clubs or fast food outlets.

When seeking to borrow commercial finance, banks will assess cases almost exclusively on a status basis. Normally a minimum deposit on a purchase of 25 % will be expected, with the bank assessing the merits of a loan of the remaining 75 %. When assessing, banks will look very closely at the companies last 3 years set of formal accounts, carefully monitoring the companies Assets and Liabilities and their Profit and Loss. Different sectors of the commercial market will generate higher or lower levels of gross profit on turnover. A bank will look closely at how much if agreed the new funding agreement will cost the company to see if with all its other associated costs it will be able to cope and retain sufficient levels of profits.

That said there a few commercial lenders who have recently taken the residential self certified market and applied a similar principal for commercial. As with residential the banks are taking a higher risk and will therefore load the interest rate. This will result in rates typically 4-5 % above Libor / base rates as appose to conventional commercial finance which at its best is only 2 % above base rates.

Unlike residential mortgages, almost without exception loans have to be taken out on Repayment only basis, often over periods no longer than 15 years. This will clearly impact on the monthly finance payment required to be paid by the company. Banks will only lend additional monies on properties where, evidence via accounts and sometimes projections is made available to confirm that the company or individual can sustain the additional payments.

Banks will also lend finance to companies or individuals who are purchasing properties with the sole intention of letting their property often under a business tenancy or long term lease for purely investment purposes. Here once again the bank will often charge a higher interest rate as investment finance is more risky than that of Owner Occupier schemes. In addition the bank will want to see that the rent received from the incoming tenant at least covers the mortgage payment and in some cases as with Buy to Let Mortgages banks will want to see a profit rent being achieved.

Within the realm of commercial finance is development finance, which again has become increasingly popular with property investors. Banks have also become far more developer friendly over the past 5 years due to the huge levels of increase in property values. This was not the case at the end of the 1980's where most of the banks lost millions of pounds with many developers going bust due largely to the wide scale recession.