Commercial mortgage lenders. Why one commercial property can attract wildly different terms from different lenders — and what that tells you about how the market actually works. David Farmer explains.
I’ve always enjoyed Dragons’ Den. Not for the pitches – for the moment afterwards, when five people who have just watched exactly the same presentation give five completely different verdicts. I love the way five people can see the same proposal for a reason very different from each other.
One’s out because it’s not their sector. One loves it but wants half the company. One saw a similar business fail in 2019 and can’t get past it. One’s already got three of these in the portfolio and doesn’t want a fourth. And one, for reasons nobody can quite explain, offers the full amount on the spot. I’m out, I’m out, I’m out, I’ll give you all the money.
Same pitch. Same numbers. Same person standing on the carpet. Five different answers.
Commercial mortgage lenders work the same way, and it catches people out constantly.
Let me share a conversation I regularly have, this one relates to a brilliant client we have based near Uckfield, it’s not verbatim but it is pretty close.
The client rings up, slightly irritated. They’ve been to their bank (nameless but let’s say I like Black Horses) about a £600,000 unit. The bank has offered 70% loan-to-value at a rate they’re not thrilled about, with a personal guarantee and a fee they weren’t expecting.
“Is that just what the market is?” they ask.
No. That’s what that lender is, on that day, for that property, given whatever else is currently sitting on their book. Which is a completely different thing.
We take the same deal out to the market and come back with three offers that differ by 1.4% on rate, by 5 percentage points on LTV, and by about £9,000 in arrangement fees. Nothing about the building has changed. Nothing about the client has changed. Only who’s looking at it.
You may think commercial mortgage lenders are all about algorithms, to a degree that’s true, but it’s all about how that formula is adjusted – on an almost daily basis. Things change, quickly, seven prime ministers since I last made a coffee tells you that.
Twenty years ago, this article wouldn’t have made sense. You went to your bank. Your bank said yes or no. That was the market. I know that because I was part of it.
It isn’t that way any more, and the numbers on this are striking. Challenger and specialist banks now account for 60% of gross bank lending to smaller businesses, up from 39% in 2012. Gross SME bank lending rose 9% to £68 billion in 2025, and more than two thirds of all SME lending – 68% – now comes from somewhere other than the main high street banks. Since 2013, **28 new providers have entered the business banking and commercial mortgage market.
In commercial property specifically, alternative commercial mortgage lenders and insurance companies now hold 45% of outstanding UK commercial real estate loans, and look likely to pass 50% within a few years (Bayes Business School CRE Lending Report, May 2026).
So when someone says “the bank turned me down”, my honest reaction is: which one, and does it matter? Because there are dozens more, and a good number of them will see the same deal entirely differently.
Having watched this for thirty years, the divergence almost always comes down to the same handful of factors.
Appetite, which changes constantly
Every lender has an internal view on sectors and regions, and it moves. A lender who’s just taken on four care homes may quietly stop looking at care homes for six months – not because care homes are bad, but because they’ve got enough. Six months later they’re keen again. This information isn’t published anywhere. You either know it or you don’t. As an example, we work with two commercial mortgage lenders who call me wanting care home lending, two years ago they wouldn’t lend to care homes.
Owner-occupied versus investment
These are priced as genuinely different animals. Owner-occupier deals in 2026 typically sit around 5.5% to 7.5%, because the lender is underwriting a trading business with accounts they can read. Investment deals land nearer 6% to 9%, because repayment depends on tenants, leases and re-letting risk. Same bricks, different risk, different price.
The nuances here are more far reaching, it isn’t just about appetite, its about liquidity and required capital. That aside, the difference in price is what the borrower sees.
What they think the building is
A shop with a flat above it is a shop with a flat above it. But one lender calls that semi-commercial and prices it as commercial. Another has a dedicated mixed-use product priced closer to residential. Another says if its more than 50% residential then it is priced as residential. The difference between these commercial mortgage lenders views can be well over a percentage point, and it’s purely a matter of internal policy.
How they read your accounts
A business with a lumpy year in 2024 looks either like a problem or like a business with a lumpy year in 2024, depending entirely on who’s reading and whether anyone has explained it. Numbers don’t speak for themselves. They never have.
I had an underwriter from a bank I won’t name look at a set of accounts. The business was brilliant (is brilliant) but the turnover had dropped by 2% (yes 2% – let me feign distress) in the latest period – the lender raised this as a concern. Notwithstanding the gross and net profit margins had increased and cash generation was up. Everything was positive but the lender was concerned about a 2% drop in turnover – borderline madness, but it demonstrates how the same accounts can be read differently by different commercial mortgage lenders.
Where their money comes from
Commercial mortgage lenders funded by retail deposits have a different cost of funds to a debt fund answering to institutional investors. That difference works its way straight through to your rate. It has nothing to do with you.
The bit that isn’t about the rate
Here’s where I’d push back on how most borrowers compare offers.
The headline rate is the thing everyone looks at, and it’s frequently the least important number commercial mortgage lender’s documents. I’ve seen deals where the cheapest rate came with the worst outcome – because of the early repayment charge, or the loan-to-value that forced a bigger deposit, or the covenant that would have caused a technical breach in year three. Whilst we will summarise a loan offer we always tell a client to read the agreement, not page one and two, but the whole agreement.
What actually matters, roughly in order:
– How much are they lending? A 75% LTV at 7% often beats 60% at 6%, because the extra deposit has to come from somewhere and that money usually has a job elsewhere. Cash has always been king, it always will be.
– How long is the term, and how long is the fix? A five-year fix on a fifteen-year term is a very different life to a two-year fix you’ll be refinancing before you’ve unpacked.
– What does it cost to leave? Early repayment charges vary from nothing to eye-watering. If there’s any chance you’ll sell or restructure, this line matters enormously.
– What are you signing personally? Personal guarantees range from none, to capped, to unlimited and jointly held with your business partner. That’s not a footnote. Providing a personal guarantee is normally mandatory, remember you can insure personal guarantees if you want comfort.
– And what happens if things wobble? Covenants are the bits nobody reads until the day they’re breached, at which point they become the only thing anyone reads.
– Break clauses. One of my favourites (sad, I know). Break clauses are in almost every term loan of almost all commercial mortgage lenders. They allow negotiation of terms and rate. Lenders tend not to mention them until they want to enforce it, then you realise it was there all along.
You could ring round twenty lenders yourself. Some people do. It’s honest work and I’d never say it can’t be done.
But there are two problems with it. The first is that most of the interesting lenders don’t take direct enquiries at all – they distribute through intermediaries and that’s simply how they’re set up.
The second is that a shotgun approach leaves a trail of credit searches and half-formed applications, and the market is smaller than it looks. Underwriters talk, it’s an incestuous industry and you can often find a bar in EC1 where they compare notes on a Friday… The industry is more human than most people realise.
The version that works is boring: understand the deal properly first, work out which four or five lenders are genuinely likely to want it, and present it to them in the way each of them needs to see it. Not spraying it everywhere. Not sending it to one and hoping. Structured, considered, targetted. It’s what we do.
Going direct to a single lender is a bit like representing yourself in court. You might win. But a decent advocate knows which arguments land with which judge. All rise m’lord…
Almost Columbo esque…
The reason I set Lime up, after nearly twenty years inside a bank (not literally, I did leave for the weekend), was that I’d seen the view from the other side of the desk. I knew what the credit paper looked like. I knew which sentence in it made the difference.
And I knew that a good business could get a mediocre answer purely because nobody had explained it to the right person in the right way. That still bothers me. It’s why this job is worth doing.
If you’ve had an offer and you’re not sure whether it’s a good one, that’s a five-minute conversation and I’m always happy to have it. Sometimes the answer is “that’s a strong deal, take it” if it is we will tell you, if it isn’t then lets look at the options.
Knowing that is worth something too.
David Farmer
Lime Finance Solutions
Because lenders have different funding costs, different sector appetites, and different internal policies about how they classify property. A bank funded by retail deposits prices differently to a debt fund. A lender with a full book in your sector will price defensively. None of this is visible from the outside, which is why the same deal can attract offers more than a percentage point apart.
Yes – but selectively. Scattering applications across the market leaves multiple credit searches and can make you look desperate to underwriters, who talk to each other more than you’d think. Just don’t do it. Better to identify the handful of lenders genuinely suited to your deal and approach those properly.
No, and this trips up a lot of people. Do you always buy the cheapest everything? No.
Loan-to-value, term length, early repayment charges, arrangement fees, personal guarantees and covenants can all outweigh a small rate difference. A cheaper rate at a lower LTV often costs more overall once you account for the extra deposit you’ve had to find.
Owner-occupier deals typically price around 5.5% to 7.5% in 2026, investment deals around 6% to 9%. The reason is what the lender is underwriting – with an owner-occupier they’re assessing a trading business with accounts; with an investment property they’re assessing tenants, lease lengths and re-letting risk. More unknowns, higher price and a different capital liquidity requirement.
Almost certainly not. Challenger and specialist banks now provide 60% of gross SME bank lending, and 68% of all SME lending comes from outside the main high street banks. A decline from one lender reflects that lender’s criteria on that day, not a verdict on your business. If a commercial mortgage lender says no, don’t take it personally but it is worth understanding why they declined, though – that shapes where you go next.
Yes, a significant number of specialist and challenger lenders operate on an intermediary-only basis and won’t take direct enquiries at all. That’s a distribution decision on their part, not a slight on you – but it does mean a chunk of the market is invisible if you’re going it alone.
Perhaps more importantly, brokers like us often get to talk direct to underwriters. That means talking through your proposal, name redacted, to get you the inside opinion – which can be invaluable.
Over 30 years finance experience. Former credit underwriter, founder of Lime Finance Solutions in 2012. Multi Award winning business, featured in Sunday Telegraph, Parliamentary Review, Sky TV and others. Regular contributor to press and business associations. FCA Authorised, ALIBF Qualified. Specialist in Commercial Mortgages, Business Lending, Property and Development Finance.
Tel: 01293 541333
Email: hello@lime-fs.com
Tel: 0207 866 2102
Email: hello@lime-fs.com
Tel: 01293 541333
Email: hello@lime-fs.com
Tel: 0207 866 2102
Email: hello@lime-fs.com
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