If you’re thinking about starting a business or even expanding an existing one, a commercial mortgage may help to make those expansion plans go a little smoother. A Commercial Mortgage is very similar to a residential mortgage, but there are certain criteria you have to consider before taking out a mortgage for a business property. The key thing to remember is that the mortgage is lent against the property’s value and just like a residential mortgage, the property is at risk if payments are not made on time. Commercial Mortgages are usually payable over 15 years, although specific repayment terms depend on the lender. Getting approved for a commercial mortgage can be simple if you follow the right steps and have all of the criteria. Here are the 4 of the main tips to successfully get a commercial mortgage:
Like any mortgage, quite a bit of research is involved however, a commercial mortgage is different in a way that you must meet more specified requirements. Since the property is there for business, it is always earning money. When you apply for a commercial mortgage, be sure to have the property’s income and expense records, pro forma statements, your own financial statements, and the most important thing, a solid business plan. Don’t forget that the lender is making an investment that could be risky so proving that you are low-risk is important. Confidence is crucial here.
Some say the toughest part of a mortgage is the down payment. The down payment is usually given in cash and equates to about 20% of the total loan amount at a bare minimum. Having a money reserve will also boost your chances of getting approved since it shows you have a “back up” in case you can’t make a payment or need to pay extra fees.
It should come natural but a lot of people forget that the right loan amount is crucial. You want to borrow an amount you know you can pay back and that will pay off the property. It’s important to make sure the amount borrowed is fully covered by the returns of the property so you don’t put more money than necessary from your own pocket into it. However, lenders do want you to partially pay out of your pocket. It proves to them that you have reserved money other than what your business is earning.
A pre-approval takes place before your final approval. Although the pre-approval isn’t ‘final,’ it does give the lender and yourself an idea of your situation. The final approval may take anywhere from a few days to a few months depending on how fast you can gather all of the information required. The key to getting an approval quickly is to study the loan approval process beforehand and be sure to have all your necessary documents and information ready.
Although commercial mortgages often come with higher interest rates and more variables than residential mortgages, commercial mortgages are more flexible and can carry extra incentives for borrowers. In some instances, a charge against non-business assets may be required to secure a commercial mortgage as collateral.
It is for this reason that the advice of a specialist in commercial mortgages is essential before you decide which mortgage to choose. You will have to meet all of the lender’s criteria, including passing all credit checks both on yourself and on the health of your business. Some lenders also implement restrictions on the uses of commercial premises including the ability to sub-let to other businesses. Considering that commercial mortgages are for 15 years or more, it may be wise to consider your long-term business plans before selecting a specific mortgage offer. Again, the advice of a commercial mortgage specialist will help you navigate through the small print.