Securing a commercial mortgage can be a significant undertaking for any business. However, if you have a County Court Judgment (CCJ) on your credit file, the task becomes even more daunting. This blog will delve into how a CCJ impacts your ability to obtain a commercial mortgage, steps to improve your chances, and available options.
What is a CCJ
A County Court Judgment (CCJ) is a court order issued in the UK against individuals or businesses that have failed to repay debts. It confirms that you have an outstanding debt that you have not settled according to the agreed terms with your creditor. It is one example of “bad credit”, which is an umbrella term which would cover late payments, defaults and even liquidations. A CCJ remains on your credit file for six years, significantly affecting your creditworthiness.
Settling a CCJ – meaning paying off the debt – won’t immediately boost your credit score, but its impact will diminish over time. You might need to wait a few years to see a noticeable improvement after settling your CCJ. However, once you settle your CCJ, it will be marked as “settled” on your credit report. This looks much better to lenders compared to an unsettled CCJ.
How a CCJ Affects a Commercial Mortgage Application
Obtaining a commercial mortgage with a CCJ is challenging but not impossible. Lenders view CCJs as indicators of financial instability, which can lead to:
- A more careful assessment of your application: Lenders will closely examine your financial history and current situation. They’ll be looking for proof that your circumstances have improved.
- Higher interest rates: Due to the perceived higher risk of non-payment lenders may offer less favorable terms. Many lower-risk lenders won’t lend to you – notably high street banks – limiting your choice of lenders.
- The need for a larger deposit: A larger deposit can reduce the lender’s risk and improve your chances of approval.
It’s also worth considering the pros and cons of buying versus renting. You might consider leasing premises with an option to buy it at a set price in, say, five years. This approach allows time for your credit issues to ease, enabling you to revisit the plan of purchasing in the future. This can be a neat solution and one you should discuss with a commercial solicitor.
Lender Criteria
When reviewing your commercial mortgage application, lenders will consider several factors related to your CCJ. How long ago the CCJ was registered plays a significant role in its impact on your creditworthiness, with older CCJs tending to have a lesser effect. Additionally, the value of the CCJ matters, with smaller amounts being less of an issue to lenders. Lastly, the status of the CCJ is crucial; a satisfied CCJ, where the debt has been cleared, is viewed more favorably than an unsatisfied one.
Improving Your Chances of Getting a Commercial Mortgage
Despite the challenges, there are steps you can take to improve your chances of securing a commercial mortgage with a CCJ:
- Demonstrate financial stability: Show that you have managed your finances well since the CCJ was issued. Provide evidence of regular savings, maintaining a stable income, and reducing your debt. Avoid missing any other payments.
- Improve your credit score: Pay off outstanding debts, avoid new debt, and ensure timely payments on all accounts. Additionally, saving for a larger deposit can increase your chances of mortgage approval, as it reduces the lender’s risk.
- Seek professional input: Using a commercial mortgage broker can significantly improve your chances, as they are familiar with lenders who are more open to applicants with CCJs.
Which Lenders Can Help
Not all commercial mortgage lenders will consider applicants with a CCJ on their credit file. High Street banks in the main are unlikely to lend in this scenario due to the bad credit. However, there are specialist lenders who focus on offering mortgages to businesses with adverse credit, including those with CCJs. These lenders may offer more flexible terms and be more willing to consider your application. You should be looking beyond the main banks and a commercial mortgage broker will be able to shortlist lenders that can help you.
Case Study: A Success Story
To illustrate let’s look at a recent example of a commercial mortgage for a warehouse where the director had a personal CCJ:
Haulage Company
A haulage company in Essex faced difficulties securing a commercial mortgage for their warehouse due to an unsatisfied personal CCJ from a utilities provider. The company approached BIZL via their accountant’s recommendation to find a lender that could support them. Together, they wrote up an explanation of the situation that led to the CCJ and highlighted how it would not be a repeatable situation. The commercial mortgage broker then found a specialist commercial lender and presented the full story to the underwriters. The lender approved the case based on the full supporting information.
Overcoming Challenges
While getting approved for a commercial mortgage with a CCJ can be challenging, it is not impossible at all. By understanding the impact of a CCJ on your mortgage eligibility, taking steps to improve your credit history, and seeking professional input, you can increase your chances of securing the mortgage you need. Specialist lenders and commercial mortgage brokers can be valuable resources in this process, helping you find the best possible deal despite your credit history.
Want Some Advice?
Talk to one of our Commercial Mortgage Specialists about your options.