How to Apply for a Commercial Mortgage
Applying for a business mortgage loan is similar to getting a personal loan. As we’ve said, using a commercial mortgage broker is a great way to do it as they’ll walk you through the process and help find the best deals. In terms of what you’ll have to do yourself, the application process will typically look like this:
- Complete an asset and liability form.
- Make the commercial mortgage application.
- Provide details of your business including your business plan/bank statements for the last three months, trading figures, proof of identity/address, lease agreement.
Once you’ve done the above, the lender will assess the value of the property and your business. Legal due diligence will then be carried out and, if you’re a worthy candidate, you’ll receive a commercial property mortgage offer.
Types of Business Mortgage Loans
If you’ve decided that a commercial mortgage is for you and you’ve got all the necessary paperwork in place, the final step is to find the type of loan that suits. Commercial mortgage rates today will often vary depending on the product you choose. As we’ve said, a broker can help you choose the right loan. However, as a guide, here are the main types of commercial business mortgage loans:
7(a) SBA Loans
Although these can be tough to get, Small Business Administration 7(a) loans are guaranteed by a federal agency. This means they often offer flexible terms and low interest rates.
CDC/504 SBA Loans
Another federally backed business loan, the Certified Development Company program distributes the risk between three parties: you (10%), a commercial lender (50%) and the Certified Development Companies (40%).
This is a short-term loan that allows you to raise capital by borrowing against an existing property in order to purchase a new one.
These are loans based on your personal financial circumstances and typically used to buy domestic homes. However, they can also be an option for business owners if commercial mortgage rates are high or the business is new/struggling financially.
What Do Business Mortgage Lenders Look At?
When it comes to getting a business loan for commercial properties, the lender will consider the following strengths/weaknesses of your venture:
This is the correlation in value between the amount you want to borrow and the value of the property. In general, commercial mortgages allow you to borrow up to 70% of the value of the property.
Collateral & Property Information
The underwriting process on commercial property loans has to be strict as lenders see them as high-risk proposals. Because of that, the lender will want to know exactly how much collateral is in the business and the state of the property you’re seeking to buy/lease.
As well as checking the financial history of your business, a lender may want to know your credit score. If you’ve previously declared bankruptcy, it could affect the chances of getting a business loan.
You need money in the bank if you want a commercial mortgage. As well as showing you’re not a risk, lenders won’t give you the full value of a property. As we’ve said, commercial mortgage rates usually go as high as 70%. This means you’ll need to cover the remaining 30% yourself.
Commercial Real Estate Loans for Bad Credit
Commercial real estate loans with bad credit can be tough to get. The best way to improve your chances of being accepted is to clean up your company’s finances. Having said that, there are lenders that specialize in bad credit commercial mortgage loans. Using a commercial mortgage broker is the best way to find these deals.
Grow Your Business with a Commercial Mortgage
If you’re a business owner that’s looking to expand by purchasing a property or land, a commercial mortgage is ideal. By using a broker to find the best deals, you may be able to improve your chances of getting accepted and, in turn, receiving the best commercial mortgage rates.
In reality, these aren’t the only way to raise capital for your project. If you’re in agriculture, a state farm mortgage might be the best option. Similarly, a self-employed mortgage could be better if you’re planning to use the property for a mixture of business and personal use. However, a commercial mortgage will typically offer better interest rates than small business loans. What’s more, they’re designed to help businesses secure a commercial property and expand. Therefore, if you’re looking to take your venture to the next level, it’s worth using a broker to find the best commercial mortgage rates possible.