Commercial Mortgage Solutions for Small Business

Learn how a commercial mortgage supports buying or investing in new property, or how it may provide working capital as an equity loan against business real estate already owned. Visit Finance Center to learn more.

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Why Commercial Mortgage Solutions?

A mortgage is a financing tool for long term real estate assets. Like a residential mortgage, a commercial mortgage provides a venue for financing a real estate purchase without tying up short term credit or large sums of cash that may be better utilized for other business purposes.

Also similar to a residential mortgage, once you have a commercial mortgage you may apply for a second mortgage when your property has accumulated sufficient equity that may be put to better use, such as a source of funds for financing growth opportunities.

Lender Comparisons

When looking for commercial real estate financing, there are some key differences between traditional bank lending practices and private lenders that you will want to compare before choosing the best approach for your business needs. These include the following:

• Maximum Loan Term - The length of time of the loan
• Maximum Loan-to-Value (LTV) - The percentage of funds that can be borrowed against the full value of the property
• Approval Time - The amount of time it takes to approve a loan application
• Cash-Out Refinancing - Addresses whether there are any usage restrictions on funds obtained from refinancing
• Appraisal Process - The process and cost for securing an appraisal of the property to be financed
• Phase I Environmental Review/Survey - A preliminary examination of a site to determine the potential for contamination, which can represent significant cost and time
• Balloon Payment - A large, lump-sum payment scheduled at the end of a series of considerably smaller periodic payments
• Investment Property Loans - A type of loan where the individual or business does not operate in the property being financed
• Required Deposit - The amount of funds that must remain on deposit with the financing institution as part of the loan agreement
• Assumable Loans - Refers to whether the loan may be assumed by someone else in the future
• Documentation Requirements - Addresses what documentation will be required to underwrite the loan
• Financial Covenants and Ongoing Reporting Requirements - Pre-stated conditions that must be met on an ongoing basis to maintain the good-standing of the loan. If the borrower does not act in accordance with the covenants, the loan can be considered in default and the lender has the right to demand payment.
• Points Charged - Finance charges assigned by most commercial lenders
• Application Fee - Fees assigned when applying for a commercial loan
• Processing Fee - Fees assigned for processing a commercial loan
• Residency Requirements - Restrictions on where you must reside relative to the property being financed

What to Ask

Below are 8 key questions to ask when shopping for a commercial mortgage that may help you to determine what the best solution is for your needs.

1. What is the maximum amount I can borrow?
2. Is there a balloon payment?
3. How soon will I have a solid commitment, and how soon can I close?
4. Will I have to maintain minimum assets or deposits?
5. What are the documentation requirements?
6. How much financial reporting is required, and what financial covenants must I make?
7. Is the loan assumable?
8. What are the total costs associated with getting the loan?

Bank vs. Private Lender

In general terms, below are some of the differences between securing a commercial mortgage through a bank lender versus a private lender.

Mortgage Terms

The duration and rate of the commercial mortgage varies depending on a variety of factors. For example, you may apply for a:

• 6-month adjustable rate mortgage
• 2, 3, 5, 7 and 10-year fixed, then adjustable rate mortgage
• Declining fixed rate or fixed rate mortgage only

Mortgage Types

There are different types of commercial mortgage options to choose from including:

10 Great Reasons about Commercial Mortgage Solutions

Below are some of the benefits available to your business through commercial mortgage solutions:

1. Financing buildings or land for business purposes
2. Apply online using easy, efficient application process
3. Support expansion, storage or outright purchase
4. Purchasing an existing business
5. Invest in a commercial/residential property development
6. Real estate typically increases in value over time
7. Convert rental payments to mortgage payments and own the asset over time
8. Deduct mortgage interest payments as a tax benefit
9. Sublet space if conditions are right to generate additional income
10. Increase working capital or secure cash flow

Where to Begin

Select from any one of the links below to learn more about a range of small business financing tools, as well as sources of small business mortgage solutions.

1. Business Loans
2. Business Insurance
3. Business Capital

About Your Educational Champion

"Commercial Mortgage Solutions for Small Business is an Edutorial published by the Knowledge Institute, recognized leaders in small business development and education by the US SBA and others. The Institute's entrepreneurial resource portals serve millions of individuals in all 50 United States and internationally by helping them to learn about and connect with resources to start, grow and succeed in business."

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Note: This information is presented to provide a general overview of small business options and related services. It is not intended to be an exhaustive representation. Data has been compiled by the Knowledge Institute for informational purposes only. Content is provided on an "as is" basis and is not intended to, nor does it, provide advice or create a customer relationship between the Knowledge Institute, BUZGate™ and/or any other organization named herein, and any reader.

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