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Pros & Cons of
commercial mortgages
Many businesses choose commercial mortgages over renting property because they are making payments towards eventual ownership and building equity. Commercial mortgages also provide significant tax benefits you can’t get from renting or leasing.
One of the key benefits to commercial mortgages is you can find a fixed interest rate for your mortgage payments. This helps improve cash flow management since you know exactly what your payments will be month-to-month.
If you ever need to sell your property (say your company needs to relocate), the mortgage is assumable. This means that anyone that qualifies as a strong commercial mortgage candidate can take over the terms and conditions of the existing mortgage. With an assumable mortgage, potential buyers see it as a benefit since they don’t have to shop around and go through the tasking process of getting one themselves.
Potential downsides
While commercial mortgages help you to finance the property that you want to purchase, getting one is a very time-consuming process. You need to provide a considerable amount of documentation including your entire business financials (income, rent rolls, business plans), personal credit history, and experience in the industry (to ensure that you’re a low risk.) You also may need to supply your lender with frequent updates of your financial status so they know you can keep up with payments.
You’re obligated to make timely payments on your commercial mortgage, even if you face lean periods in your business. It’s a tough reality of the commercial mortgages world, but you must have a plan in place to keep business flourishing if you want to maintain your property.
And if you’re buying a large office building with the intention of renting the available space, you must have tenants lined up. The lender wants to see that you have that space rented so they know that stream of income will continue rolling in to get the bills paid.
Steps to getting a commercial mortgage
Follow this helpful checklist to walk through the various steps necessary to secure a commercial mortgage. Don’t overlook any point on this list as each is important and integral to securing a commercial mortgage for your business.
- Find property – Commercial mortgage lenders will not take their valuable time to meet you and work with you if you haven’t already located property you wish to purchase.
- Research lenders – You then need to assess your lending options by investigating various lenders and commercial mortgage brokers to find the rates and terms that fit your needs.
- Fill out application – Like any other lending process, you need to complete these forms to get the process started.
- Collect documentation – As previously mentioned, you’ll need more documentation than any other purchase for a commercial mortgage. This will include everything from business receipts to personal financials and much more.
- Get legal representation – You’ll need a professional to sift through the countless paperwork and make sure you’re not getting hit up for excessive (and unnecessary) fees.
Once you complete these steps, the lender will review your financials, perform background checks, schedule the environmental inspections (if necessary), determine your eligibility, and then underwrite and fund the mortgage.
Once this process is complete, you should have your lawyer review everything and attend the closing with you to make sure everything is in order. Submit your down payment, sign the contracts, and you should have the money to purchase the property within a few days.