With Lendio’s commercial mortgage, you can acquire a physical location for your business; often an excellent way for business owners to expand their company and attract more customers. However, leasing or renting a commercial property can get very expensive. Paired with operating costs, it could be more than you can manage on a small budget.
If you’re in this situation, consider taking out a commercial mortgage loan with Lendio. How do these loans work, and how can business owners qualify for one?
What Is A Commercial Mortgage Loan?
A commercial mortgage is a loan usually taken out by business owners who want to buy property for commercial purposes. Any property that allows the owner to make a sizable income is eligible for a commercial mortgage. This includes establishments like restaurants or offices, but it can also include things like petting zoos or a ski resort. You can also share a property with another business owner, as long as your business occupies 51% of the property.
A commercial mortgage loan is an excellent option for both first-time business location owners and those looking for growth. It may seem like a big commitment, but taking out a commercial mortgage loan can save you thousands of dollars long-term. Buying your own property with a commercial mortgage also absolves you from increasing rent and lease rates.
The money you save from reduced mortgages and zero rent charges can be used to fund other essential business costs. As the property’s value grows, you’ll also be able to access its equity. The property you buy will also be considered an asset.
Putting down your new property as an asset can also help you secure other business funding loans. For example, if you’re struggling with daily operational costs, you might pursue a working capital loan. If you can list a valuable asset as collateral, you have a better chance of getting approved. Just for your information, Lendio also offers these other business funding options:
- SBA Loans
- Business Lines of Credit
- Short-term Loans
- Merchant Cash Advances
- Term Loans
- Equipment Financing
- Accounts Receivable Financing
- Start-up Business Loans
- Business Acquisition Loans
How Do Commercial Mortgage Loans Work?
You can secure a commercial mortgage loan through your bank or work with a private lender. However, it can be hard to get any type of loan through a bank if you have a bad credit score. Banks typically aren’t keen on taking a risk with new business owners either, unless they have a reliable co-signer. This may be the best reason to apply for a commercial mortgage with Lendio. Since they have a network of lenders in their marketplace, you can submit a single application to have better chances of getting a loan approved.
Regardless of where you get the loan, you’ll need to provide some documentation to increase your chances of getting approved. You should have copies of your tax returns from the last three to five years and some recent bank statements. It’s also essential to have documentation of the recent income your business has generated, as well as projected sales. Even if your business has had a slow season, some lenders are willing to work with you based on future income.
Your commercial mortgage loan terms will depend on the value and size of the property you purchase. The average term for a commercial mortgage loan is 15 years, but some last for over 25 years. You can typically take out $150,000-$5 million for a commercial mortgage loan.
How Can You Use Commercial Loan Funds?
The most common way borrowers spend a commercial loan is by purchasing an existing property. However, as long as your spending is related to property costs, there are multiple ways you can use your loan. For instance, maybe you already own property for your business, but it’s too small or outdated for your current needs.
In that case, you can use a commercial loan to cover renovation costs and spruce up your property. Renovation could be significant if you purchased the building in poor condition, which could deter customers from visiting your establishment. You could also add on an extra room for storage or a new dining/waiting room area.
If you can’t find a property that suits your needs, you can use your commercial loan to build a new building. This is also a good option if the required renovations might exceed the amount of money you’ve borrowed. Plus, a completely new facility will be tailor-made to suit your business.
You can also use the money to acquire a building you wish to rent out to another business. The monthly rent or lease payments from that business owner will also help to offset the mortgage loan payments you owe.
To recap, commercial mortgages offer:
- Long loan terms
- Immediately available assets
- Flexible funding options
- Reduced business costs
What are the Typical Commercial Loan Rates?
As with the loan repayment terms, interest rates will vary depending on certain factors. Since commercial mortgage loans are long-term, you can expect the interest rate to be slightly higher than other business loans. Interest rates can also differ from lender to lender.
The average commercial loan rate on an SBA loan ranges between 4.38-4.49% for up to $1 million borrowed. However, the SBA is a little more strict than other lenders regarding how you can spend your funds. This organization may also reject your application if you don’t have a considerable amount of equity already.
For traditional bank loans, the usual rate for a commercial mortgage loan is 5%. However, this number will increase if you need to borrow more than $25,000. Private lending companies like Lendio can often get you the lowest interest rates, down to 4.25% and maxing out at 6%.
How To Qualify for a Commercial Mortgage
In addition to all the necessary documents, your business needs to have a good credit score to qualify for a loan. Generally, a score of 680 is the minimum for getting a commercial mortgage loan. Some lenders will approve you if your score is a little lower, like 650.
However, if your business has little or no credit score, you still have options if you apply using Lendio to access a network of over 75 lenders nationwide. Private lenders are also willing to look at your personal credit history to determine your dependability. Even if your personal credit score is low, documentation of timely payments and reasonable financial projections can help you get a loan.
Some lenders will also require you to hand over some form of down payment or collateral to secure the loan. However, you can negotiate with the lender to determine a figure that suits your budget and assets. Some lenders, like Lendio, never ask for a down payment when you apply for a loan. Lendio also allows you to refinance the loan for a lower interest rate at any time.
Here’s what to remember when applying for a commercial mortgage with Lendio:
- Average Loan Amount: $250,000-$5 million
- Average Interest Rate: As low 4.25-6%
- Loan Term: 20-25 years
Getting a Commercial Mortgage Loan with Lendio
If this is your first time getting a commercial mortgage loan, all this new information can be overwhelming. That’s why Lendio makes the loan application process as smooth as possible. On average, the application takes around 15 minutes to complete.
You can apply online once you’ve gathered as much financial documentation as possible. Additionally, Lendio asks for planned property blueprints, renovation plans, and an estimated project budget. This is to help determine how much money you’ll need.
Once approved, Lendio will release your funds in as little as 45 days. With building costs taken care of, you can focus your efforts on your business’s continued financial growth.