Commercial Mortgage

Tips on getting a business mortgage

A commercial mortgage is functionally very similar to a home mortgage. A financial institution lends the business the money they need to buy a piece of property, using the property itself as collateral to secure the repayment of the mortgage loan. They are structured the exact same way, too: the business makes a down payment, an agreed-upon interest rate is compounded at regular intervals and the business mortgage payments are divided into monthly amounts to be repaid over a specified period of time.

Differences Between Residential and Commercial Mortgages

There are two significant differences in the way a commercial mortgage works in comparison to a home mortgage. First, the collateral held by the commercial mortgage lender can be either the piece of property being financed or other pieces of real estate or assets held or controlled by the company.

Second, the party taking on the business mortgage doesn't have to be an individual borrower; in fact, it's usually not. Instead, the business itself assumes the commercial mortgage loan responsibilities. Depending on the way the business is structured, the borrowing party may consist of a partnership, a corporation or a limited business.

A commercial mortgage rate may be slightly more advantageous than a residential one because commercial real estate tends to be worth a lot more than the average house, which translates into bigger profits for lenders because of the bigger balances subject to interest charges. However, borrowers should be aware that property tax assessments are typically much higher on commercial buildings, which may offset any savings realized through lower interest rates.

Finding a Commercial Mortgage Broker

It is more difficult to assess the creditworthiness of a business, given that it's usually not a single individual securing the loan, but an entire company, partnership or incorporated business. Thus, it is necessary to work with an experienced commercial mortgage broker who specializes in lending money to companies wishing to buy real estate. In commercial mortgages, the single most important borrower assessment criterion is the ratio of available cash generated by the business to the monthly loan payments.

If you're in the market for a commercial mortgage and your business already deals with a preferred financial institution, talk to the representative you deal with at your bank. There's probably someone already on staff with the experience and credentials to help you, since most major banks and well-established brokerages have the personnel in place to help meet your specific needs.

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