If your business needs to buy commercial property for a start-up or expansion, a commercial mortgage loan can provide the funding needed for your project. Commercial mortgage loans are offered by banks, private lenders, and other lending institutions, each with varying lending programs to offer and options for repayment to meet your needs. Commercial real estate loans are often larger and more complicated than regular home mortgages. Therefore, these are sometimes more difficult to obtain. The approval process may be lengthier, with more requirements and paperwork than the typical home mortgage. When applying for a commercial mortgage loan, it's important to know the requirements going in so you can have everything ready during the approval process. Getting Started Before ever starting the loan approval process, you must find a building or property to purchase. You'll need to have the property appraised and be able to provide proof that the building is environmentally safe. Also, check your own credit report and credit score to be sure your credit record will be appealing to lenders. If there are negative records showing on your credit report or outstanding balances, you might want to pay these off and wait a little while longer before applying for your loan. These will remain on your credit report for a certain number of years, but showing you've paid the balance proves you made an effort to clear your negative credit. Also, create a list of positives about your business and what you plan to do with the property. The lender will want to know your goals, and will likely want to see a business plan. You should also be able to show a positive debt/income ratio and/or a stable, profitable business history. Types of Commercial Mortgage Loans There are many types of commercial mortgage loans, with fixed and variable rates being the two most popular choices. Fixed commercial real estate loans carry a fixed interest rate, which gives you a fixed monthly payment. The usual length is 15 to 25 years for commercial mortgage loans. Variable mortgages often have lower initial rates, but then the interest rate can increase ever so often, thus, increasing your monthly payment. You might start with a variable rate to get the lower rate and then refinance later on when the fixed rates drop in the credit market. Interest-only commercial real estate mortgages are loans in which the monthly payments are made toward only the interest for the first three to five years. The initial monthly payments are lower, which can help improve the cash flow in your business. Balloon mortgages are shorter-term loans in which the initial payments are very small but then a very large "balloon" payment is required at the end of your loan. Commercial Mortgage Lenders The choices are numerous when it comes to lenders for commercial mortgage loans. You can approach a traditional lender such as a bank or try non-traditional lenders such as private lenders or investors that are willing to loan money. A loan broker can help you choose the right avenue for your needs, and offer advice about possible payback plans. You can choose a loan broker and lender locally or find one online. It's good to know all your options before applying for your loan. You can also apply for a commercial mortgage loan if you need to refinance an existing business property. This process is usually much faster than a new loan because you already own the property and have the documentation needed to acquire the loan. Commercial Loan Fees When buying commercial property, be prepared for all the fees that will show up before or during closing. These include a valuation fee or appraisal fee, environmental surveys (for potentially dangerous properties), broker fees, legal fees, due diligence fees (for credit and background checks), and application and processing fees. Also, be sure to question your lender or broker about early repayment penalties and balloon payments. Whether using a bank or private lender, get everything in writing before moving forward. The key to obtaining a commercial mortgage loan is to take time to read all the requirements, speak with a broker (ask plenty of questions), and keep your credit rating as high as possible. There are many websites online to help you with the process. Contact a broker today to find the best type of loan to help your business.
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