Commercial property mortgages are generally used by businesses to acquire business assets, business expansion, business real estate refinance etc. This type of loan is secured by collateral in the form of commercial property, which will be used by the lender to recover the full amount of the loan outstanding in the event of default on the part of borrower.
There are mainly three sources of commercial property mortgages – banks, third-party lenders and commercial mortgage brokers.
Banks are usually the first stop for any kind of loans and commercial property loans are no exception, however borrowers with a bad credit record or who are new to the business may find getting approval from the banks rather difficult. Third party lenders usually serve such borrowers. They can provide mortgages more quickly and with less documentation. Third-party lenders charge a significantly higher interest rate than banks.
Commercial mortgage brokers don’t provide mortgages directly. Instead, they investigate many banks and lenders to find you the right mortgage suitable for your business and at the most competitive price.
While commercial property loans are a very common business activity, the requirements to qualify for such a loan are quite strict. However if all the requirements are met and the application is found creditworthy, it typically takes around 60 days to disburse the loan. Following is a discussion on the steps commonly required of the borrowers.
Steps to be taken by the borrowers
Property hunting: This is first and foremost requirement, the borrower needs to have finalized a building or land before going for the commercial property mortgage. Even if the borrower has the buy to let commercial mortgage in mind, they need to have tenants to convince the lender of the repaying capacity of the property.
Find a lender: The next step is finding a lender. This is one of the most important steps as the right lender will not only approve the application quickly, but also will help the borrowers prepare for the application process. Here brokers can play a very important role as they are networked to a number of lenders and will help work out the best commercial mortgage rates and terms within a shorter period of time.
Complete a loan application: Here the actual process of loan application starts. It seems a pretty simple task but one should be very careful while filling in various details as any false or unsubstantiated (by valid documents) information or claim can seriously damage the success prospects. Remember, lenders are experts at scrutinizing the applications and it is very difficult to camouflage the actual facts from them. Rather give them the actual picture and explain the reasons honestly.
Provide documentation: This is the Holy Grail for the lenders and with good reason, all claims are just claims without proper documents to support them, with backing documents these claims become facts. So lenders ask for detailed financial statements from the previous three years, including business and personal records. These would include operating statements, bank records, tax returns and corporate financials. Prepare these documents carefully as they may make or break the commercial property loan application. Take professional help to prepare them.
Hire a lawyer: A property transaction is full of legal formalities, so hire a competent lawyer while purchasing a commercial property mortgage. They are experts at presenting and interpreting legal documents. They will help finalize the best terms and conditions.
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