Commercial Mortgages – How Lenders Assess Affordability


We are seeing a lot of activity in Commercial Mortgages – both owner-occupier and investment – and just like with a personal mortgage it is logical to think that one of the primary things that a lender will look at is whether you can afford to repay the mortgage – both now and in the future.

We want to cut through the acronyms and smoke and mirrors to show that far from being some sort of ‘dark arts’ it is the same process they use to evaluate your business as we all might do our own personal finances.

With a Commercial Investment Mortgage the maths is relatively straightforward; you will have a commercial lease in place with your tenant and the lender will ‘stress’ your mortgage with simulations of interest rate rises to ensure that even if rates were to rise from their current levels then the commercial lease still makes the mortgage payments affordable.

Commercial Mortgages for trading businesses have far more moving parts as affordability is based on the future trading performance of the business.

In the absence of a crystal ball the lender has to use past performance as a guide to whether your business can service the mortgage moving forward.

Again we can draw a similarity here with a personal mortgage application – your prospective lender would want to know all about your income, together with the other debt and outgoings that you have to service regularly. From this they will derive how much ‘headroom’ you have in your finances to be able to afford the mortgage.


Debt Coverage Ratio (DCR)

I did say that we wanted to cut through the acronyms – so it’s high time that we started to use them!

When a lender takes away your outgoings for debt from your income, they will be left with the current ‘headroom’ in your finances from which your company’s mortgage can be paid moving forward. But there are still variables in this number such as your business turnover decreasing, or your other costs or debt increasing.

So the lender won’t want to see that your headroom is equal to (or less than) your future mortgage payments, but a multiple of them. This is called your Debt Coverage Ratio (DCR) – and commonly lenders are looking for a DCR of 1.5x to 2x.

Calculate your Debt Coverage Ratio (DCR):

Annual Net Income Divided By Annual Debt Payments = Debt Coverage Ratio

For example:

£82,500 Net Income Divided By Annual Debt Payments £45,000 = DCR of 1.83

Using the ‘right’ Net Income

Of course it couldn’t be so easy that the lender could just cherry pick a line from your company’s last set of filed accounts and use that; oh no, they have to go and make us calculate another number that they use in their affordability calculations too!

Your existing company accounts include existing lease or mortgage payments but the lender is evaluating future affordability of a new mortgage – so the ‘net income’ that they use will have certain items added back onto it.

This generates what lenders generally call ‘adjusted net profit’ or ‘adjusted EBITDA’.

We are not qualified accountants, so these calculations really do stay on the ‘back of an envelope’ for our purposes. In simple terms take the profit before tax and add back to that items such as:

  •       Lease / Rent
  •       Depreciation
  •       Amortisation
  •       Directors’ Dividends

Case Study – ABC Ltd

We can take the case of ABC Ltd, and then put into practice the above construction of the Net Income, and then use that along with the debt in the company to derive their Debt Coverage Ratio (DCR).

  •       ABC Ltd. currently pays £40,000 pa commercial lease
  •       Annually ABC Ltd. make £15,000 in Asset Finance payments
  •       They are applying for a 70% LTV mortgage on a £465,000 purchase price, meaning a £325,000 loan, estimated by the lender to be £32,000pa initially in annual payments

Accounting for the pandemic impact

Like a lot of businesses in the country, ABC Ltd was Covid impacted, and so if we moved forward to the current period, and included the financial year 2020/21, then that doesn’t present on its own a Debt Coverage Ratio (DCR) that the lender would see as indicating affordability.

The obvious addition to this table is the fact that the lender will strip out Covid related grants and income that are one off in nature, and this reduces the DCR to levels where the lender would not arrive at a positive decision for affordability.

But we are now a few months into the next financial year, and thankfully into recovery mode for many business post-pandemic restrictions, and so lenders are willing to include the accounts for this new current financial year in their assessment.

The April to June quarter 2021 actually showed a 25%-30% increase on turnover compared to the 2019 and 2018 figures for the same months, and so there is something here for the lender to work with and progress for ABC Ltd.


We are seeing a lot of demand for, and activity in, Owner-Occupier Commercial Mortgages – and armed with the accounts and facts we can work with lenders to find suitable and affordable solutions for the roof over your business.

How do you want to get funded?

Mark Grant, July 2021.  / 01636 614 014

What Should An Appointed Representative Network Mean For You?


I guess that I should be clear what I mean when I say ‘Appointed Representative Network’ or ‘AR’ as it will be easier to retype many times here!

An Appointed Representative in financial services is a person or company that is authorised to carry out specific types of activity under the regulatory umbrella of a firm that is directly authorised by the FCA.

Why might you do that rather than be directly authorised yourself? Headline reasons are cost, together with monitoring, administration and reporting activities that comes with direct authorisation, and for which you are wholly responsible as an FCA directly authorised firm.

So as an AR of a company that is themselves directly authorised, your costs are lower and most if not all of the administration of your authorsation falls to your network provider – BUT that is not to say that you don’t have obligations to uphold.

As an AR network provider we are vouching for the person and firm that is an AR of our network – that you are solvent, reputable and trustworthy, and that you will uphold the regulations relating to the area in which you operate and carry out your business in a compliant manner.

In short, it’s our neck on the block!

Our own authorisation and reputation are affected by your conduct as an AR – so therefore we put the time in to ensure that:

  •         you are trained in both our approach to clients and the areas in which you will operate.
  •         each case is conducted in a compliant manner.
  •         you access the necessary CPD and compliance training annually.

The most common examples in the UK of AR networks are in residential mortgage broking. There are multiple network providers in residential mortgages – underlining how well the process works, and we see examples of one man bands up to 40 or 50 advisers where the model is beneficial to the business.

We have the good fortune to work with one of the largest, and in our (slightly biased?) opinion best, residential mortgage networks in The OpenWork Partnership. We are one of only a couple of partners that their ARs can introduce Commercial Finance cases to.

Which in turn brings me to our own AR network – the Fiducia Commercial Finance AR Network – and back to my original question: What should an AR network mean for you?

To us it means a partnership and collaboration – we have a vested interest in ensuring that:

  • you are trained fully in all aspects of your role.
  • you are aware of your compliance obligations, and you have the tools and systems to carry them out.
  • you keep current in updates and changes in the commercial finance market and products.

The partnership and collaboration goes beyond the set up, induction and kick off of your AR activities; we have a USP as an AR network provider that positions us head and shoulders above most of the market - we do the same job that you do!

Beyond the compliance, administration, finance and systems support that you receive as an AR, your membership of the network should provide you with the business support that you need from when you start out to when you are established but working on complex cases.

We are not a commercial finance brokerage that has just set up an AR network as a sideline without putting in the ongoing and long-term support.

We are not a franchise that takes a large up front payment in return for a couple of webinars and a manual that points you towards your promised six-figure salary – because believe me if it was that easy then that’s where I would be and not blog writing this weekend!

We are not ‘working the numbers’ and just getting as many people through the door because then dissatisfied leavers don’t affect us too much.

We are commercial finance brokerage that works with our ARs to provide them with the tools and support to enable them to help their clients – and not just at the outset, but on an ongoing basis.

Especially in the current period of recovery, and what we hope will be the worst of the pandemic behind us, support from a team experienced with getting deals over the line that aren’t always straightforward could be the difference to being a successful AR.


That’s what being part of the Fiducia AR Network means for you – being part of something bigger that you can lean back on for support in multiple ways whenever you need to. We share your goal of wanting you to be a successful commercial finance broker – as an AR of The Fiducia Commercial Finance Network.

Mark Grant, July 2021.  / 01636 614 014

Fiducia's 'Commercial View' July Podcast


The weather may have cooled off, but sectors of the lending market are still hot, and we are seeing strong demand for both Commercial and Investment funding.

We have some great topics to cover in July's 'Commercial View' Podcast:

Just How Semi Is Your Commercial? Continued strong demand in residential property sets a value on how your Semi-Commercial property is divided.

Commercial View with West One Loans - We ask the lender about the level of demand for Bridging and Development finance - and how their appetite for business has changed post pandemic.

Lender Criteria - The devil, and your funding outcome, is in the detail as we discover.

- Cashflow Conservation - Limited companies almost without exception will be recovering or growing with demand, and we look at how commercial finance can support that.

We look forward to the chance to discuss your requirements this coming month.