Simply defined, commercial mortgages are loans given to businesses so they can buy a commercial property. It’s quite different from residential mortgages in many ways, but more particularly on its interest rate and loan-to-value ratio.
Essentially, the loan-to-value ratio of commercial mortgages is lower than that of residential mortgages. This means a much lower amount from the total value of the property is covered by the loan. And as far as the interest rate is concerned, that of the commercial mortgage is higher than the residential mortgage.
Important Notes on Commercial Mortgages
Many businesses take on a commercial mortgage to expand their operations. Some entities do it to purchase properties such as hotels, retail outlets, warehouses, and the like. These mortgages usually have a term of 3 to 25 years, but on the average, 15 years. If it is not paid on time, then the property purchased will be at risk.
Banks and lenders that offer commercial mortgages follow a set of criteria for qualifying their buyers. Like individual buyers, they will also check the positive personal credit rating of the business to determine if they are creditworthy.
The Process of Approval
Banks and lenders have the last say when it comes to approving the loan request of a business entity. They will also be the one who will set the interest rate and the loan-to-value ratio of the mortgage. They may also possibly approve businesses with an adverse credit history but that’s going to be solely at their own discretion.
Their decision will normally depend on the current business circumstances of the commercial borrower. They’ll determine if the business is stable or profitable enough to be granted the loan. The lender may request additional documents such as long-term financial projections and a showcase of financial capability to indicate that they have the ability to make on-time loan payments.
Making the Loan Application Process Simpler
There are professionals whose expertise lies in making borrowers look good in front of lenders. If there’s a mortgage broker for individual buyers, then there’s a commercial mortgage broker for business entities as well. Their role is to help businesses in the same way that they help individuals in order to be successfully approved for the loan.
Finding the best deal is crucial when it comes to commercial mortgages. This is why you need the help of brokers because they can match you with the right lenders. They will help find the lender that would work best with your financial standing and match you with the one that offers the ideal interest rate and term of the loan.
Are There Fees to Be Paid?
There are different types of fees charged whenever you apply for a loan. Some of these fees are arrangement fees, valuation fees, and legal fees. It pays to understand everything about each of these as they will add to the total amount that you’ll pay for.
Talk to a mortgage broker so you’ll be guided accordingly. Businesses will benefit best from the partnership as it can be a start of a long-term relationship, not just one mortgage loan but several more.