Commercial Mortgages

Americans who are interested in buying properties for business would probably consider commercial mortgages as financing options for purchasing business properties. Multi-family housing units, office buildings, retail buildings, or any other property owned and zoned for commercial purposes is considered a commercial building. It's very crucial for anyone seeking a commercial mortgage to understand his or her monthly repayment budget and whether the business has the potential to expand or grow.

Finding the right lender

Just like the residential mortgage, it's good to search the market and see whether there are competitive deals to choose from. There are impartial commercial mortgage brokers, especially in the high street, who can help greatly in searching the entire market before proposing a deal.

The work of the broker is to scour the commercial mortgage market for the best deal that is suitable for his or her client's particular business. The commercial mortgage broker will also make certain that the business is constantly benefiting from the best rates available. The National Association of Commercial Finance Brokers has several experienced commercial mortgage brokers to choose from.

Ideally, commercial mortgages can last for more than 15 years but when an individual defaults by failing to keep up with the monthly repayments, the property is at risk. It's important to meet the lending criteria of a lender in order to get commercial mortgage financing.

Although certain lenders can give financing to people who have bad credit history, it's crucial for a business person to maintain a clean record in order to get a competitive deal from lenders. Lenders will apply a loan to value ratio to the commercial mortgage deal and will often require an individual to invest some of his or her own money into the asset. The more the amount of money an investor chooses to invest, the higher the chances of securing the commercial mortgage.

A potential lender may ask for verification that the business is not undergoing any financial pressures and check to see whether it's profitable. Therefore, the lender will request for projections and business accounts. It's very prudent for anyone to consider consulting with a solicitor or a chartered surveyor because a lender may impose certain strict restrictions on the property like the ability to sublet to another business.

What information will be needed?

Since most banks request for a lot of commercial information such as the performance of the business, it's wise to prepare beforehand so that the process can run swiftly. The lender's main concern is whether the loan can be repaid without defaulting, and in case that happens, the property can be worth enough to cover the commercial mortgage.

When buying a business together with a commercial property, the following additional information should be provided:

  • An audit of the business's accounts for the past two years.
  • Business performance.
  • The personal information of the business' stakeholders to check credit.
  • A business plan that has details on how the property will contribute to cash flow and a detailed plan on how the loan will be repaid.
  • Information about any personal investments in the business.
  • The projections on the business in regards to growth.

Repaying the mortgage

Since commercial mortgages are considered to be a higher risk by most lenders, you may be expected to pay a higher rate of interest as compared to residential mortgages. But people with a big deposit that is over 20% can attract a lower rate of interest than those with a smaller deposit.

Majority of commercial mortgage deals are either a fixed rate or variable rate. For a fixed rate, an applicant can get repayment stability but without the advantage of benefiting on any falls in the base rate. A variable rate allows an individual to benefit from any reductions in the base rate, on the flip side, repayments will increase whenever the base rate increases.