What is a commercial mortgage?
Commercial mortgages are mid-term loans made using business or commercial real estate to secure payment. The borrower is generally a company or business as opposed to an individual and the business may be either a partnership, limited company or incorporated. Consequently, assessing credit history is more complicated with this type of mortgage. You can also expect commercial mortgage rates to be higher than residential rates due to the increased risk.
The proceeds from a commercial mortgage are typically used to acquire or redevelop commercial property. They also facilitate a bridge for the arrival of longer term financing from a conventional institutional lender or to provide time to value-enhance a project or property type prior to sale.
A commercial mortgage can also be used for the development or refinancing of an existing business, for example:
• expansion or refurbishment of a business property
• buying out a partner’s share of a business property
• current tenant purchasing the freehold of a business property
• consolidation of existing loans at a lower rate of interest
How Much Can Be Borrowed Using A Commercial Mortgage?
The amount that financial institutions are normally prepared to lend as commercial mortgages depends on several factors including:
• value of the property
• size of deposit to be contributed by the mortgage applicant
• maximum loan to value (LTV) ratio that the lender will sanction for the type of property
Typical Commercial property types include –
The application process can be quite involved, more so than for a residential mortgage. On the outset, lenders generally need to know the following key elements up front-
Loan Amount: How much does the borrower need?
Source and Uses of Funds: How will the commercial loan be used? How much borrower equity is there? How will it be used?
Amortization: Will there be principal repayments or will the commercial loan be interest only?
Security: What is the security being offered? A full description of the land and buildings that includes all of the salient information, namely: location; size of lot; age of building(s); size of building(s) (net rentable area and gross floor area if available); type of building; uses; tenant mix; market factors; accessibility; type of construction; any special characteristics.
Borrower/Guarantor Details: Who are the Borrowers and or Guarantors? What experience do they bring to this project? Any prior relevant experience should be described in detail. Will there be enough income to pay the commercial mortgage payments? If not, is there a way to make the commercial loan work by including collateral security?
Exit Strategy: How will the commercial loan be repaid?
Every commercial mortgage request we receive is unique and specific. Regardless of the scope of your venture, we will find the match between your demand and a lender’s criteria. Each commercial mortgage application we receive is treated with priority and handled uniquely. We know how important this business or investment opportunity is to you, and will take every measure to ensure your financing is provided on the best terms possible.