Your Guide To Commercial Mortgages 

Written by Banks Editorial Team
5 min. read
Written by Banks Editorial Team
5 min. read

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A commercial property establishes your business in the local community. You’ll have a location for prospects and can expand if your initial property gains momentum. While price can present a steep barrier to entry, commercial mortgages help business owners finance these assets. We’ll explain how commercial mortgages can help your company and how to get one.

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What Is a Commercial Mortgage and How Does It Work?

A commercial mortgage is a financial product that business owners use to secure a commercial or multifamily property with five or more units. These loans help business owners obtain property without making a cash offer. Some business owners take out a new loan with a lower interest rate to refinance their existing commercial mortgage, but you can also use this financial product for other endeavors, such as renovating properties you own.

Is A Commercial Mortgage Right for Your Business?

Many businesses rely on commercial mortgages to finance commercial properties. These loans can help your business, but they’re not for everyone. Consider these factors before getting a loan:

Business Growth

A business property gives your company a physical footprint, which helps your company grow within the local community. Businesses with solid margins can grow sustainably, and a commercial mortgage puts these companies in a position to gain market share. Leverage is a useful resource for business growth. You can finance new equipment, hire new people, and spend money on ads. Commercial mortgages turn leverage into new locations for businesses.

Business Expenses

A commercial mortgage adds an expense to your budget and turns the property into collateral. You should assess your finances and determine if you can comfortably afford the monthly mortgage payments. Buying a commercial property and losing it in a few years is a significant setback. Not only will you have to acquire another commercial property, but customers may habitually visit your old location and not know about your new address. Some companies overextend and end up losing everything, so you should assess your financial situation before taking on more debt.

Business Opportunities

A commercial mortgage isn’t only an investment in the building but an investment in the neighborhood and residents of the area. You should analyze a community before buying a piece of land. The average income, unemployment rate, and crime rate serve as starting points for assessing a community. Location is one of the most important parts of real estate, and it influences how many opportunities will come your way.

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What Are the Benefits of Getting a Commercial Mortgage?

Business owners use commercial mortgages to obtain financing, but they’re not the only choice. We’ll explore the competitive advantages commercial mortgages have over other financial products:

Loan Large Amounts

More opportunities open up when you retain more funding. While you can borrow money with many financial products, few provide as much as commercial mortgages. Most mortgage lending companies provide loan amounts of up to $5 million for a commercial mortgage. Since lenders require a down payment, you could use one of these loans to buy a property with over $5 million. 

Own A Commercial Real Estate Asset

A commercial real estate asset puts your company on the map. You get a physical location people to interact with your customers and provide services. Additionally, owning real estate will benefit your company during tax season. Real estate owners can access depreciation, 1031 exchanges, and other tax-saving measures to protect more of their profits. 

Build Equity

Real estate investors flock to the asset for equity and appreciation. You may have business aspirations with this property, but you also need to expand your real estate portfolio. Each monthly mortgage payment increases your equity in the commercial property, and building equity will help if you sell the property, use a cash-out refinance, or tap into a line of credit. As you make monthly payments and gain equity, your property may appreciate. The location can become more desirable, and annual inflation props up real estate. 

If you own a multifamily investment property, appreciation rates are under your control. Investors look at a multifamily property’s net operating income to assess the valuation. Working hard to increase net operating income will raise your property’s value and build more equity in the process.

Low Rates

Low rates reduce the monthly payments for any loan, but they carry extra significance for commercial mortgages. Some business owners borrow over $1 million for commercial real estate financing. However, a higher interest rate can sting business owners. Depending on how much you borrow, an additional percentage point can add over $1,000 to your monthly payment. Comparing commercial real estate loans from multiple banks and lenders will lead to the most competitive rates. Such due diligence can help you secure a lower interest rate and save thousands of dollars over the loan’s lifetime.

Flexible Terms

Business owners can select from several financing choices with shorter terms than residential mortgages. You can choose a 3-year loan term if you want to pay it back quickly or a 25-year mortgage for lower monthly payments. Most commercial loans have 3, 5, or 10-year terms.

How To Get a Commercial Mortgage

Getting financing for a commercial property is exciting. This property can help your business grow, and you may expand operations in the future. A commercial mortgage loan is the starting point of new opportunities, and we’ll share how to get one.

1. Do Your Research

Investing in an office building, apartment complex, or any commercial property is a significant expenditure, so you should do as much research as possible to feel confident about the location and find the right lender. Reaching out to several lenders gives you more financing choices. Then, once you have the proper financing, you can swoop in and secure a high-quality property you feel confident about after doing your research. 

2. Know Your Credit Score

Lenders will ask about your credit score before giving you a loan. Most lenders have post-credit approval requirements for aspiring commercial property owners. A credit score indicates your ability to manage debt; Lenders feel more confident giving money to people with higher scores, and strong credit can lower your interest rate. Check your credit score before approaching a lender, and improve it as much as possible. Paying off credit cards and other debt on time is one of the best ways to raise your score. 

3. Gather Required Documents

Lenders will ask for several documents in your application. Each lender has different requirements, but you can expect to provide the following documents:

  • Personal and business tax returns
  • Financial statements
  • Business operating statements for the year
  • Profit and loss statement
  • Business projections (i.e., cash flow and other metrics)
  • Basic personal information (i.e., social security number)
  • Business Plan

Assemble these files now, so you have them when it’s time to approach lenders.

4. Devise A Business Plan

Some lenders will review your business plan before letting you borrow money.  A business plan will help you utilize the commercial property, identify the available opportunities, and position yourself to gain market share. You should already have a business plan, as it’s a valuable resource. However, it would help to adapt your strategy to accommodate your new asset.

5. Prepare Your Down Payment (Just in Case)

Not all lenders will let you escape from making a down payment. Saving up for a down payment is a good insurance measure, as you don’t want to get rejected from a desirable property because you didn’t save enough money for the initial payment. Start saving money and put the down payment proceeds into a separate bank account. A separate account lowers the chances of those funds getting mixed up with other costs.

Where Can You Get Commercial Mortgage Funding?

A commercial property establishes a new presence for your company. Commercial mortgage funding makes these properties more accessible to business owners and allows you to build equity over time. You can also use a commercial mortgage to refinance your existing loan to get a lower rate. These mortgages provide versatility for your business, and you can get a loan with National Business Capital. The commercial lender offers mortgages to help with:

  • Purchasing your first property
  • Expand your commercial footprint
  • Refinance one of your buildings

National Business Capital has other types of mortgages that aid small businesses. You can visit their website to apply for a loan today.

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