One of the frustrations commercial mortgage brokers frequently raise when discussing complex cases centres on the interpretation of risk. Brokers have a deep understanding of their clients’ businesses, having spent considerable time examining not only their financial position but also the experience of the management team, the strength of the underlying business model and the long-term strategy for growth.
However, when those cases reach the underwriting stage, the assessment of risk can sometimes appear more rigid. In certain circumstances, the nuance that brokers recognise in a client’s proposition is lost within traditional credit frameworks.
This is particularly evident when dealing with first-time operators within a given sector. It is not unusual for lenders to place disproportionate weight on the absence of prior ownership experience, even where the borrower has spent many years working within the industry and possesses a clear and credible plan for the business they intend to acquire.
We have encountered cases of this nature ourselves. One recent example involved a first-time care home operator who had struggled to secure funding elsewhere. The difficulty did not lie in the fundamentals of the proposal – the borrower had significant sector experience and a well-developed strategy for revitalising underperforming homes – but in the fact that some lenders were reluctant to look beyond the label of ‘first-time buyer’.
Situations like this highlight the importance of evaluating commercial lending opportunities through a broader lens. Risk is rarely binary in the real economy. Businesses succeed or fail based on a wide range of factors, and the most effective lending decisions are those which recognise that complexity, rather than reducing it to a narrow set of criteria.
The consequences of an overly cautious interpretation of risk can also manifest in pricing. Brokers often observe that particularly strong cases – those supported by robust cashflow and conservative leverage – do not always benefit from meaningful differentiation in the rates offered, yet from a lender’s perspective, these transactions inherently present lower levels of risk.
That thinking was central to our decision to introduce a rate discount on cases where the debt service coverage ratio or interest coverage ratio reaches 200%. Borrowers operating with this level of headroom demonstrate a significant capacity to service their obligations, and it is entirely appropriate that the pricing they receive reflects that strength. Providing a more competitive rate in these circumstances not only rewards prudent financial management but can also unlock additional opportunities for SMEs to invest and expand.
Ultimately, the more accurately risk is understood within commercial lending, the greater the potential for SMEs to access the capital required to grow.
ACTING ON BROKER INSIGHT
The introduction of the high debt service coverage discount came about following broker feedback, and illustrates the importance of maintaining an open dialogue with the adviser community. Brokers operate at the coalface, and so have a particularly clear view of where funding gaps exist and where otherwise viable businesses are struggling to secure appropriate finance.
Another example of how this dialogue can translate into tangible change is our recent decision to lower the minimum loan size for commercial mortgages from £250,000 to £200,000. Conversations with brokers repeatedly highlighted that businesses seeking funding at the lower end of the commercial spectrum were facing an increasingly limited range of competitive options.
From a lender’s perspective, responding to this sort of feedback serves multiple purposes. It ensures that the lender’s proposition evolves in line with the practical needs of SMEs and their advisers, while it also reinforces the principle that brokers should be regarded not simply as introducers of business, but as genuine strategic partners whose insights can shape the development of lending products.
It is easy for lenders to emphasise the importance of broker relationships in principle but the real test lies in whether those relationships lead to meaningful change. When lenders are prepared to reassess their criteria, pricing or processes in response to broker feedback, it creates a more collaborative relationship that ultimately benefits borrowers.
CONFIDENCE IN AN UNCERTAIN WORLD
The most recent edition of our SME Pulse, covering the final quarter of 2025, pointed to a meaningful improvement in confidence among business borrowers. The proportion of brokers reporting increased appetite for borrowing rose sharply, while not a single respondent observed a decline in demand among their SME clients, a first since the survey began in 2023.
However, it is important to recognise that business sentiment does not exist in isolation from global events. The survey was conducted before the latest escalation of conflict in the Middle East, developments which once again serve as a reminder of how quickly geopolitical instability can ripple through the global economy and influence domestic business decision-making.
At this stage, it is far too early to draw firm conclusions about the long-term consequences for British businesses. Periods of geopolitical tension do not always translate into sustained economic disruption, and the resilience demonstrated by the SME sector in recent years should not be underestimated.
What the coming months will reveal is whether the improved sentiment captured in the latest SME Pulse proves durable or whether businesses adopt a more cautious stance while the global outlook remains unsettled. Future editions of the Pulse will therefore provide a valuable insight into how SME confidence evolves as events unfold.
What remains beyond doubt, however, is that lenders who maintain a close dialogue with brokers will be best placed to respond effectively, regardless of how the economic environment develops. By working collaboratively with brokers to refine their propositions, adapt their criteria and address genuine funding gaps, lenders can ensure they remain relevant and supportive partners for SMEs navigating an uncertain landscape.
