What Is A Commercial Mortgage And How Can You Get One?
What Mortgage Is Right For you?
If you’re looking to expand your business premises, you might want to consider taking out a commercial mortgage. This will also firmly plant you on the business property ladder which is an essential move if you are serious about expanding the business.
Before you begin thinking about a commercial mortgage, there are a few things you need to understand to make sure that you know exactly what you are signing up for. Doing so will help you to avoid future trouble.
You must first consult a local broker like Myles Robinson at Loan Corp to see whether you are eligible to qualify. If you are, you can then focus on your application.
If you’re ready to learn more about a commercial mortgage, this article has got you covered.
What Is A Commercial Mortgage?
A commercial mortgage, or a business mortgage, lets business owners borrow the money needed to purchase a property or land for their business from a high street bank or a specialist lender.
It typically lasts anywhere between three and 25 years. And, like other types of mortgage, it is repaid in monthly installments, along with interest.
While commercial mortgages are most commonly used by business owners wanting to officially own their business premises, they may also be used by specific investors wanting to buy a property to lease 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 doesn’t usually come with fixed rates.
- You’ll likely pay a much higher interest rate compared to a regular home mortgage as they are generally considered to be a higher risk to lenders.
- They offer better interest rates than typical business loans that require you to put forward personal property as collateral.
How To Get A Commercial Mortgage
How To Qualify
Commercial lenders prefer borrowers who have experience in property investment. This is because operating a commercial or mixed-use property can be a pretty difficult thing to do.
If you want to increase your chances of being granted a mortgage, we’d suggest that you tick off the following factors:
- A deposit ranging anywhere from 20% – 30%
- Be a homeowner
- Have owned a couple of buy-to-let properties for 24 months minimum
- Have considerable savings in the bank
- Provide evidence of your income (rent, self-employment, or salary)
If you don’t meet all of the criteria above, don’t panic! You’ll likely still find a lender but your pricing may be much higher.
The Steps
Like a regular home mortgage, the application process will vary depending on the lender that you choose to go with. Yet there are a couple of steps that will remain the same. We have outlined these below.
- Fill out an online commercial mortgage application called an Asset and Liability form and submit it to the relevant broker.
- When prompted, you will then need to submit relevant information about your business. This might include (but is not limited to) the following:
- Proof of identity and address
- Bank statements (the last 3 months)
- Trading figures (the last 3 years)
- Lease agreement
- Tenancy agreement
- A business plan outlining financial projections (this will allow the lender to determine how likely you’d be to pay off the loan in the agreed timescale)
- You will then need to arrange a property valuation on the premises that you are wanting to purchase. Make sure to keep a record of this.
- The next step usually involves waiting for the lender or broker to carry out all the required legal checks and necessary paperwork.
- If your commercial mortgage application has passed all of the checks and has been officially approved, you’ll then receive a formal mortgage offer from your chosen bank.
Other Things To Consider
Before you begin considering a commercial mortgage, you need to have the deposit ready in your bank. These can be quite hefty so you need to make sure you can afford to repay this in addition to the monthly repayments.
Remember, you can still apply for a commercial mortgage with a bad credit rating. However, you should expect to pay much higher interest to make up for the risk the broker is taking.
Summary
Hopefully, you now understand what a commercial mortgage is and how to get one. The process may seem easy in theory but never underestimate the hard work you’ll need to put in!
It’s your job to make sure you have all of the relevant information and documents to get your application approved.
What Is A Commercial Mortgage And How Can You Get One?
