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The Basics Of A Commercial Mortgage

Aug 17, 2007
A commercial mortgage is a mortgage for a building that will be used for business. Commercial mortgages are like a residential mortgage, but can differ in a few ways. Commercial mortgages are a little riskier than a residential mortgage. They are not for someones home, but rather for business use, usually a start up business which in and of itself produces a risk to the lender.

Commercial mortgages require the same steps as a residential mortgage. However, with a commercial mortgage if the business has an established line of credit separate form the individual business owner, then the businesses credit is used to secure the loan.

Commercial mortgages can have a fixed or variable interest rate. A fixed rate will stay at the same percentage for the life of the loan. A variable rate will change as interest rates change. With a fixed rate the benefit is that a person will always know the cost of their mortgage payment, however, a variable loan allows a person to take advantage when rates drop, immediately.

Fixed rate mortgages though can be refinanced when rates drop and therefore the rate will be fixed at that lower rate. The choice can be difficult and should be discussed with the lender to ensure the best one is chosen for the circumstances of the business.

When applying for a commercial loan a business owner should make sure they have all of their financial information prepared and documentation ready for when they meet with the lender. If it is a start up business then they will need their personal financial records. They will also need a comprehensive business plan including business finances.

If the business is already established and has its own line of credit then the business owner will only need to provide the businesses financial information. It is best to be prepared with income taxes from the last two years for both the business and business owner.

Commercial mortgages are pretty much a lot like residential mortgages. The basics of the mortgage terms are the same. The main difference is the documentation used. When applying for a commercial mortgage a business owner needs to ensure they are well prepared to offer the documentation to prove their business is going to do well or has been doing well.

The lender is mainly interested in seeing that the business is not likely to go under any time soon. If they have any doubts it could cause problems with getting the loan. Additionally, the business owner should be willing to put up some type of collateral to secure the loan, as this will make lenders more likely to consider approving the loan. Anything a business owner can do to ensure the loan will be repaid is worth doing.

Business loans of any type are often considered risky for a lender so they are extra careful in approving them. This is important for a business owner to keep in mind when searching for their commercial mortgage loan.
About the Author
James Copper writes on all areas of finance and investment. He works for CFS who source commercial mortgages for business owners and people looking to starting their business.
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