The 4 C’s to Successfully Get a Commercial Mortgage and Expand Your Business

If you need a commercial property to start or expand a business, a commercial mortgage is often a great long-term option. When deciding whether or not to grant you the mortgage and what terms and interest rate to offer you, lenders will often use the criteria of the 4C’s for assessing the borrowers’ creditworthiness. Knowing exactly what the lenders are looking for will allow you to proactively be on top of your game, thus being able to put yourself in a better position to successfully get a mortgage on favourable terms. So let us take a look at the 4C’s criteria used for assessing borrowers’ credibility.

Character

This is a subjective criterion determined by the nature of your business. Your business must be operating with healthy profits for a long time. The lenders also assess the nature of your businesses. For example, retail and restaurants are deemed risky investments. Your adherence to ethics may also be examined. This also includes the current lawsuits and potential exposure to future lawsuits against your business. Any indications of fraud and corporate corruption will also be deemed as a negative aspect of your business.

Capacity to repay

This has to do mostly with the finances and the corporate structure of a business. If the business is a subsidiary of a much larger and stable conglomeration, then there is a possibility that the parent corporation can take over the liabilities of the subsidiary, making repayment more likely. A healthy balance sheet for a long time also indicates a good ability for repayment. Also, if you are in a growing market then it is assumed that your business will grow, making it easier to repay the mortgage. Higher the capacity to repay, better the terms of the mortgage.

Collateral

This is simply the value and nature of the property that is the collateral for the mortgage. If the collateral is a higher value property and located in a high demand location, you can get better terms or your mortgage. Also if the type of property is such that it can easily be sold in the market, such as an office space, then it also helps in getting a better mortgage offer.

Capital assets

These are the material assets of your business, other than the collateral. This criterion is important since in case of default, the collateral is not enough to cover the cost of the remaining mortgage amount due to value depreciation, the borrower may be able to cover the remaining cost by selling the capital assets. These assets may include anything from stocked products, machinery and equipment or other commercial property.