Depending on the lender, commercial loans may or may not have strict loan terms and application criteria. As a broker, you may be able to negotiate these criteria and terms; however, each bank has its own set of terms. In addition, they will assess both your client’s income and the purpose of their loan to determine their borrowing power and risk.
How do banks verify income?
Banks have stricter income requirements for commercial loans because of the risk involved. However, there are several ways banks may verify your client’s income for commercial loans.
- If a borrower is applying for full doc loans, all of their financial statements, including payslips, tax documents and bank statements, are required.
- If a borrower is applying for a lease doc loan, they need to prove that their lease (rental) income is higher than the loan’s repayments.
- If they are applying for a low doc loan, they need to provide an accountant’s letter or their business’s financial statements.
- If they are applying for a no doc or forecast loan, they should work with a commercial mortgage broker. These are high-risk loans and banks are hesitant to approve these loans, except in certain situations.
What is the purpose of your loan?
Another way banks determine the risk level of a loan is by understanding how the borrower intends to use it.
- If they plan to buy or refinance the commercial property to rent out or lease, banks will consider this loan low risk.
- If they plan to purchase or refinance the commercial property to use it for their own business, banks will consider this a medium-risk loan.
- If they plan to use the loan to fund their business’s daily operations, banks will consider this a high-risk loan.
Whatever type of loan a borrower is applying for and its purpose, working with a commercial mortgage broker is crucial. Mortgage Street and our team of brokers specialise in commercial loans. We can find your clients loans with the most competitive rates with flexible terms that fit their needs.