Commercial mortgage financing is essential to businesses, small and large. Unlike residential mortgages, commercial loans often have a shorter payment term and feature one final balloon payment.
These loans are available from banks, private investors, pension 후순위아파트담보대출 funds, insurance companies and other lenders. The best option is to shop around and compare terms offered by different lenders.
Requirements
Commercial mortgage loans are very different from consumer mortgages and require a much more rigorous review process. Lenders will typically review the borrower’s credit history (both personal and business) as well as financial statements and the property appraisal. Other factors, such as the DSCR and credit score will also play an important role in the loan approval process. Lenders may also require a detailed business plan and specific details about the debt schedule of the property being financed. Specialized loan programs such as those for energy efficiency features might also require additional application sections and information.
Unlike residential mortgages, commercial loans are provided to companies or businesses that own real estate like offices, industrial warehouses, shopping malls, apartment complexes and multifamily properties. A commercial mortgage is backed by the property itself or by an insurance policy that covers the value of the building. Depending on the lender, the terms of a commercial mortgage can range from seven to 30 years.
Structure of the Loan
Commercial mortgage lenders look at a variety of factors to determine whether or not the borrower qualifies for the loan. These include credit score, bank statements, time-in-business, and annual revenue. Some commercial mortgage lenders may also require a personal guarantee from the owners of the business.
In addition, the type of property being purchased will play a major role in how the lender structures the loan. For example, real estate is considered to be more desirable collateral than intellectual property. This will influence the loan structure, as lenders can take a greater risk on real estate and offer lower interest rates and better terms than intellectual property loans.
Unlike residential mortgage loans, commercial mortgages typically do not cover the full value of a commercial property, meaning that a down payment is necessary. Additionally, commercial mortgages are usually non-recourse, meaning that the debt will only be paid off with the sale of the property. This will protect the lender from having to pursue the owner of the business for repayment if the property is not sold.
Interest Rates
Commercial mortgage rates are based on several factors, including creditworthiness, loan features, collateral and the property itself. They also depend on the economy. Higher economic growth can cause interest rates to increase, while lower projected growth may cause them to decrease.
It is essential to shop around for different lenders before applying for a commercial mortgage loan. This is because the approval process can take longer and is more subjective than a residential loan. It is also best to apply with several lenders, as this will give you more options if you are denied by one.
Most lenders determine rates based on an index like the 10-year treasury yield or prime rate plus a margin. They also consider a borrower’s creditworthiness and their ability to pay back the loan. They will review their personal credit reports and scores, as well as their business credit reports and scores. Some lenders will also use collateral to secure their loans, such as real estate or equipment.
Refinancing
If your business’s financial standing has improved, you may want to refinance your commercial property mortgage to take advantage of lower interest rates. However, be sure to consider the costs of refinancing carefully. Typically, lenders charge an origination fee that is one percent of the total loan amount. This can add up quickly, especially for larger loans.
Lenders review the borrower’s credit history and financials, as well as evaluate the underlying commercial property collateral thoroughly. Because of this, a refinance can be a lengthy process. However, you can reduce the time it takes by having all your paperwork in order and doing your research. You should also make sure your business is profitable and that you have a solid track record of making timely payments on previous loans before applying for refinance. This will show the lender you’ll be able to make timely payments on a new loan.