A commercial mortgage is a mortgage loan secured by commercial property, such as an office building, shopping center, industrial warehouse, or apartment complex. The proceeds from a commercial mortgage are typically used to acquire, refinance, or redevelop commercial property. Commercial real estate isn’t cheap. You will probably need to secure financing from an outside lender. You will have a lien on the property by the banks, trust or government sponsored financiers. If the loan is not repaid the lenders will seize the property to recoup their cost.
Pros and Cons
Any type of property, whether it’s commercial or residential, can be a good investment opportunity. For your money, commercial properties typically offer more financial reward than residential properties, such as rental apartments or single-family homes, but there also can be more risks. Understanding the full pros and cons of investing in commercial properties is important so you can make the investment decisions for your situation.
- Commercial Mortgage loans enable small businesses to acquire property which may appreciate in value, delivering capital gains. No more monthly rent checks and it could increase your equity with each payment.
- You are locked into a fixed interest rate and your payment will remain the same every month. Your payments are predictable for the future which gives you less worrying about your finances. Less worry gives you more time to focus on your business.
- Another revenue stream would be renting out space to another business. In the event your commercial space is more than you need, renting out a little space would be a great option.
- Cash flow problems from a significant down payment in order to secure the financing for the purchase of your property.
- Maintenance of the property. If your pipes burst or you need a new HVAC you can’t go running to your landlord for help. You will have to absorb the cost.
- An economy nosedive. Property values usually increase over time but not always. If for any reason you would have to sell your property during a down time in real estate prices you would take a major loss.
You know your business better than anyone, every business is in a unique position. The question, is real estate the best investment for your business? Only you can make the decision if you are better off to be a tenant or to secure a Commercial Mortgage.
What to Expect During the Commercial Mortgage Loan Application Process
The Items You Will Need…
- Current business and personal tax returns
- Business-related financial records
- Personal and business credit score information
- Bank statements for personal and business accounts
- Asset and liability statements
- Profiles of business partners and directors if any
- Business plans
Assuming you are a qualified buyer you can expect to fill out a bunch of paperwork for the application. After all that an underwriter will assess your application. If approved you will be paying lots of fees…
- Property appraisal fees
- Application fees
- Loan origination fees
- Legal fees
- Surveying fees
It can take three to four months for lenders to process commercial real estate loans. So be patient and hopefully your property is not time-sensitive.
Common Interest and Repayment Terms For Your Commercial Mortgage Loan
Unlike residential loans, the terms of commercial loans typically range from five years to 20 years, and the amortization period is often longer than the term of the loan. … In general, the longer the loan repayment schedule, the higher the interest rate.
The top commercial loans are…
- Traditional term loans
- Short-term loans
- SBA loans
- Equipment loans
- Commercial real estate loans
- Business line of credit
- Merchant cash advances
The current commercial real estate loan rates range anywhere between 5% and 30%, but range between 10% and 20% for the typical borrower. The rate you get on the loan depends on the type of commercial real estate loan you apply for. SBA 7(a) loans rates range from 7.75% to 10.25% (variable).
Lendio’s Commercial Mortgage Loans
A commercial mortgage can help you buy, build, expand, remodel, or refinance. And it offers several sweet benefits: it’s a secure piece of collateral, typically has low interest rates, and helps you start earning equity. Plus, building stuff is just the grownup version of playing with Legos.
Loan Amount: $250,000-5,000,000
Term: 20-25 Years
Payment Frequency: Monthly
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