Businesses large and small often require additional funding beyond what they have in cash. A commercial mortgage may be needed for any number of reasons such as buying a commercial property, business expansion, or remodeling, to name a few.
What is a Commercial Mortgage?
If an individual or company wants to secure financing for business purposes they can attain this money through a commercial mortgage. A commercial loan is simply a loan that is secured by a commercial building or some other form of commercial real estate. This property may already be owned by the individual or company seeking the loan or it may be what the loan is meant to purchase. So if a person wanted to buy a hotel for example, they could use the hotel itself as the collateral for the loan.
These types of loans are used to purchase or even develop properties including:
- Hotels
- Convenience stores
- Retirement homes
- Shopping centers
- Office buildings
Commercial Lenders
Commercial lenders are the ones who make these types of loans. They can include commercial banks and some insurance companies. The Small Business Administration or SBA also provides commercial loans which are administered by local or regional banks.
The qualification requirements for a commercial loan will vary between lenders. But in general it’s the property itself that will be the most important factor, specifically the appraised value and its operating finances if it’s an operating business such as a hotel. The borrower’s credit history and score are not often that important but they may be checked and taken into account.
A person can either approach banks and other commercial lenders directly to inquire about loans or they can work with a commercial mortgage broker. Brokers are experts at finding the best rates and lenders based on their clients’ needs. They can also be better at negotiating favorable rates and terms than the borrower may be.
Documents Required by Commercial Mortgage Lenders
Getting a commercial mortgage can be complicated and time consuming. Regardless of whether an individual goes it alone or uses the services of a broker they will need certain documents. These include:
- 3-5 Years of Financial Statements - These would be the income statements, profit and loss statements and balance sheets for the business.
- Business Plan- a business plan will often be required
- Appraisal - a commercial property appraisal may be needed. The seller may already have one so it’s best to check before paying for a new one.
- Environmental Study - this isn’t always required but for businesses such as gas stations and auto body shops it may be.
Ultimately, either the lender or broker will inform the borrower of what documents are needed. Its best to attain these as quickly as possible in order to get the commercial mortgage process completed. Keep in mind that some commercial loans such as those from the SBA can take months to close.
Sources:
- All Business, ”Financing Commercial Property with Mortgage Loans”
- Commercial Lifeline, "US Commercial Mortgage Guide"
Nikhil Hira - Hello, My name's Nick Hira and I currently live in sunny Florida. I have experience and interests in a variety of areas from which I ...
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