What is a commercial mortgage and how do I get one?
Which mortgage is right for you?
If you are looking to expand your business premises, you may want to consider taking out a commercial mortgage. It will also set you firmly on the commercial property ladder, which is an essential step if you are serious about growing your business.
Before you start thinking about a commercial mortgage, there are a few things you need to understand to make sure you know exactly what you’re signing up for. This will help you avoid future problems.
First you need to consult a local broker like Myles Robinson at Loan Corp to see if you qualify. If you are, then you can concentrate on your application.
If you’re ready to learn more about a commercial mortgage, this article has you covered.
What is a Commercial Mortgage?
A business mortgage, or business mortgage, allows business owners to borrow the money needed to purchase property or land for their business from a major bank or specialty lender. .
It usually lasts between three and 25 years. And, like other types of mortgageit is repaid in monthly instalments, plus interest.
Although commercial mortgages are most often used by business owners wishing to take formal ownership of their business premises, they can also be used by specific investors wishing to purchase a property to lease it to another business, for example.
Key Features of a Commercial Mortgage
A commercial mortgage plan differs from a typical mortgage in the following ways:
- It usually does not come with fixed rates.
- You will likely pay a much higher interest rate compared to a regular mortgage, as they are generally considered higher risk for lenders.
- They offer better interest rates than typical business loans that require you to put up personal assets as collateral.
How to Get a Commercial Mortgage
How to qualify
Commercial lenders prefer borrowers who have experience in real estate investing. Indeed, operating a commercial or mixed-use property can be quite a difficult thing to do.
If you want to increase your chances of getting a mortgage, we suggest checking off the following factors:
- A deposit ranging from 20% to 30%
- Being owner
- Own a few rental properties for a minimum of 24 months
- Have considerable savings in the bank
- Provide proof of your income (rent, self-employment or salary)
If you don’t meet all of the above criteria, don’t panic! You will probably still find a lender, but your rates could be much higher.
The steps
As with a regular mortgage, the application process will vary depending on which lender you choose to go with. Still, there are a few steps that will remain the same. We have described them below.
- Complete an online commercial mortgage application called the Asset and Liability Form and submit it to the relevant broker.
- When prompted, you will then be required to submit relevant information about your business. This may include (but is not limited to) the following:
- Proof of identity and address
- Bank statements (last 3 months)
- Commercial figures (the last 3 years)
- Rental agreement
- Rental agreement
- A business plan outlining financial projections (this will allow the lender to determine the likelihood of you repaying the loan within the agreed time frame)
- You will then need to arrange a property valuation on the places you want to buy. Be sure to keep track of this.
- The next step is usually to wait for the lender or broker to complete all required legal checks and necessary documentation.
- If your commercial mortgage application has passed all checks and been officially approved, then you will receive an official mortgage offer from the bank of your choice.
Other things to consider
Before you start considering a commercial mortgage, you must have the deposit ready with your bank. These can be quite hefty, so you need to make sure you can afford to repay this in addition to monthly repayments.
Remember that you can still apply for a commercial mortgage with a bad credit rating. However, you should expect to pay much higher interest to compensate for the risk the broker is taking.
Summary
I hope you now understand what a commercial mortgage is and how to get one. The process may sound easy in theory, but never underestimate the hard work you’ll need!
It’s your job to make sure you have all the relevant information and documents to get your application approved.
What is a commercial mortgage and how do I get one?
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