The three tests that decide your commercial loan
- LTV (loan-to-value): commercial property valuations are typically below residential equivalents on a per-square-foot basis. The lender's surveyor sets the valuation — your purchase price is not necessarily the lending value.
- DSCR (debt service coverage ratio): Net Operating Income (NOI) divided by annual mortgage payments. Most lenders want DSCR ≥ 1.25 (125%) for owner-occupier, ≥ 1.40 (140%) for investment.
- Company affordability: 2–3 years of filed accounts. Net profit (EBITDA) must comfortably cover debt service plus existing commitments.
Worked owner-occupier example
A trading company buying its premises:
- Property: £600,000 (lender valuation £580,000).
- Company EBITDA: £180,000/year.
- Existing rent paid: £42,000/year (will be saved post-purchase).
- Loan rate: 7.5% over 20 years.
LTV test: 75% × £580,000 = £435,000 max.
DSCR test: annual debt service on £435,000 at 7.5% over 20 years = ~£42,070. Available NOI = £180k EBITDA + £42k rent saving = £222k. DSCR = £222k ÷ £42k = 5.3 — passes easily.
Affordability test: Net profit covers debt service many times over — passes.
Maximum loan: £435,000 (LTV-driven). Deposit needed: £165,000.
Worked investment commercial example
Buying a commercial unit to lease out:
- Property: £450,000.
- Annual rent (existing 10-year FRI lease): £36,000.
- Loan rate: 7.0%, 20-year amortising.
LTV test: 65% × £450k = £292,500 max.
DSCR test at 140%: max debt service = £36,000 ÷ 1.40 = £25,714/year. At 7% over 20 years that's a max loan of ~£275,000.
Lower of LTV and DSCR: £275,000. Deposit needed: £175,000.
UK commercial mortgage lenders in 2026
- Allica Bank — owner-occupier specialist; sharp on trading SMEs.
- Cambridge & Counties Bank — strong on professional and trading borrowers.
- Shawbrook — broad commercial including HMO and semi-commercial.
- OakNorth — tech-enabled, sharp on £500k–£10m loans.
- Together Money — flexible criteria, higher rate.
- InterBay — semi-commercial and pure commercial.
- Aldermore — commercial owner-occupier and investment.
- Lloyds / NatWest / HSBC Commercial — large bank desks for established businesses.
- Hampshire Trust Bank — challenger commercial.
- Sector specialists (Metro Bank for hospitality, healthcare-specific lenders).
Sectors and their lender appetite
- Offices, light industrial, retail (high street): well-served, mainstream pricing.
- Warehouses, distribution, trade counters: strong appetite, often best rates.
- Pubs and restaurants: sector specialists only; rate premium 0.50%–1.00%.
- Hotels and B&Bs: sector specialists; 60% LTV typical.
- Care homes: sector specialists; CQC rating dependency.
- Petrol stations: niche; environmental considerations.
- Mixed-use / semi-commercial: Shawbrook, InterBay specialise.
Costs and timeline
- Arrangement fee: 1.5%–2% of loan, added to balance or paid upfront.
- Commercial valuation: £1,500–£5,000+ depending on property type and size.
- Legal fees: £2,500–£7,500 (commercial conveyancing).
- Survey: dilapidations and condition surveys often required.
- Timeline: 8–14 weeks application to completion.
Pros
- Own your business premises and stop paying rent.
- Capital appreciation belongs to the business.
- Rental income from investment commercial can be strong.
- Multiple UK lenders compete for SME commercial business.
- Interest is fully deductible against business profit.
Cons
- Larger deposits (25%–40%) than residential.
- Rates 1.5%–3% above residential equivalent LTV.
- Three-test sizing — easy to under-borrow on DSCR.
- Longer, more expensive legal and valuation process.
- Specialist sectors face narrower lender pools and pricing premiums.