Understanding Commercial Mortgages
Reasons to Seek a Loan
There are several reasons a business might seek out a commercial mortgage. The first would be additional space. When a business starts to grow faster than the business anticipates, you might need additional space to hold additional employees or products. The second reason you might seek a commercial mortgage would be getting a warehouse or funding your own fulfillment center instead of renting the space, as renting one can actually be more expensive than a commercial mortgage. The third and most popular reason is to grow the business by funding an additional location which is a great investment.
Finding a Mortgage Provider
When you decide to seek out a loan and you have a great business plan, the next step is to find a bank for your commercial loan. The most important thing to note is that most banks prefer to give mortgages to local businesses. Talk to your local banks before looking for online providers. Local banks will give you a lower rate and have connections in your area that can benefit your business. Working locally also helps invest in your own local economy which some say can help stimulate your business. You have a higher likelihood of getting approved if you choose this route.
Application Process
The application process for commercial mortgages is similar to residential mortgages in some ways, but there are some differences that you need to be aware of. When seeking a commercial loan, the bank looks at the credit score of the company and not the individual person. This is one of the benefits of this type of mortgage as an individual isn’t responsible for the loan. However, if you’re a new company without a credit score, it can make the application process more difficult. A bank might go over the finances of your business so be prepared to allow them to access these records.
What to Do When Denied
Sometimes, an application doesn’t go the way you planned it to go. If a commercial mortgage gets denied, you have several options. You can apply for a mortgage again and make adjustments to get approved this time. The first thing you need to do is find out why you were rejected in the first place. If they didn’t like your business plan or the amount you were asking for, make adjustments. Sometimes, the bank can say that your business was too new and had too low of a credit history to warrant mortgage approval. If this is the case, you may need to build your company credit score before applying again to get the best rate.
What to Watch Out For
When getting a commercial mortgage there are two things to look out for. The first thing is the interest rate. Business properties are typically large investments like warehouses, restaurants and apartment buildings. A one percent difference in an interest rate could mean you pay thousands of more dollars per year or even per month, so seek out the best interest rate you can. The second thing to look out for is hidden fees. There are fees you may not consider like lawyer fees, inspections, loan application fees and accounting fees. Hidden fees can burden your business if you don’t notice them in time.
