Make a loan work for your business with a secured commercial mortgage on your commercial property.
Commercial mortgages are loans that are borrowed for any non-residential property; this can include the building in which you conduct your business, or a rental or investment property. Mortgages taken out on these kinds of buildings are used to purchase, refinance, or even to finance renovations to the interior or exterior of the building.
These kinds of loans are structured to meet the needs of the individual lender and borrower, creating a payment schedule, negotiating on the interest rate and amount, and the borrower’s personal and business-related finances and credit rating are taken into serious consideration before the lender can authorise any loan.
What do commercial mortgage brokers do?
Commercial mortgage brokers act as the liaison between banks or other lending institutions, looking for a suitable business loan to help borrowers finance, renovate, or purchase their commercial properties. The brokers then sell the loan to the borrower, working in congruence with many banks and other mortgage organisations, offering a large range of loan options. Commercial mortgage brokers are required to know how the mortgage offerings work, what the mortgage market looks like, what the borrower’s best options are, and how to make the loan work best for the borrower.
Most mortgage brokers are part of a group, like the Australian Mortgage Brokers group, where credible brokers can be found. They are generally required to be licensed and educated, as they need to know about the appropriate products available and how they can best suit the borrower’s wants and needs in regards to his or her commercial property.
Why use a commercial mortgage broker?
Using a commercial mortgage broker is a great alternative to navigating the cutthroat business loan market yourself; brokers are well-read and well-versed when it comes to liaising with banks and financial institutions and finding the best loans to suit with what fits your plans for your commercial property. Brokers can offer a wider array of choices, they can help you negotiate mortgage terms to make them flexible, and they work solely for you and not for the bank or other lenders.
The broker can help you manage every aspect of your loan, often throughout the life of your loan. Brokers can help you to dispute fees, and act as a kind of intermediary force if required. This takes much stress off of you as you deal with creating your business, renovating, or refinancing, so that you can worry about your day-to-day business operations and let the mortgage broker handle the lender.
The different types of commercial properties
Commercial real estate is basically defined as property such as retail shops or office space which is used for commercial purposes. Some also include factories and warehouses in this, although these are also sometimes considered to be industrial real estate. Below are several different types of commercial properties that you may qualify for a mortgage on:
- Office and/or warehouse buildings: These can include the typical larger buildings where you go to work in a cubicle or office. These building can also be small and only house offices of one company, or larger to house multiple companies in multiple offices or storeys. Warehouse buildings are defined as properties that are used to store business products and supplies.
- Retail buildings: Malls or shopping centres are included as retail buildings, including individual stores in strip malls. Individual stores can be defined as an office or a retail building depending on the lender’s definitions and if there is a rate difference depending on the property type.
- Land development: If you have plans to build a commercial property, you can submit plans for approval to the lender to get the loan needed to build the property. This is still defined as a commercial mortgage; many lenders and brokers may have their own policies in regards to this, so check all policies before submitting anything to be approved.
How to qualify for a commercial mortgage
Usually, if you have a business or other commercial entity, you can apply for a commercial mortgage. As the name of your business will be on the mortgage application and subsequent loan, the business itself must have a good credit score and the owning entity, whether it be you as an individual or not, must have a reputable lending history to be approved.
Other things that your selected lender will consider, and your mortgage broker will ask you to have available, include the following:
Corporate financial details: Details of the business’ profits, assets, and liabilities will be required. If you are just starting out, you must provide financial projections. The value, or projected value, of the property should also be submitted as the property or building is used by the lender as security against your loan.
Personal financial details: As you will be taking out the loan, you are expected to have a good credit history as well. Bring details of your own personal finances, expenses, and assets.
How to choose the right commercial mortgage broker
Choosing the right mortgage broker should not be something that you take lightly; as your business is your livelihood, you are essentially placing the fate of your livelihood in the hands of a broker. You must make sure that they are more than capable, with experience and credibility. Find a broker that you like to work with, as you will need to build a strong relationship and set the foundation for solid communication.
Brokers that cooperate with a large number of banks and financial institutions are able to negotiate a better rate for you, and to help you understand your application and potential mortgage. The more experience the broker has, the better. Research the broker’s reputation to ensure that the broker is reliable, along with the company that the broker works for. Companies with a high level of experience in the market are preferable, as they will have a better reputation with lenders and, therefore, clientele.
Also, ensure that your broker is part of a regulating body such as the Mortgage & Finance Association of Australia (MFAA) or the Finance Broker Association of Australia (FBAA). This will ensure they adhere to various service and complaints handling procedures.
Commercial mortgages: frequently asked questions
Ask as many questions as you can of the broker so that you can feel comfortable to ensure the broker’s competency. Below are several Frequently Asked Questions about commercial mortgages:
How long will it take to be approved for the loan?
This depends on the lender and your broker; many commercial mortgages take 45 – 60 days to close.
What can I do to speed up the application process?
This is where communication with your broker is key; if they have a solid reputation with the bank or lending institution, they may be able to give you regular status updates on the application.
What kind of deposit do I need to make?
Typically, you should put down at least 20% and no less than 5% of the total mortgage. If you put down less than 20%, you may be subject to paying lender's mortgage insurance until you have built up more than this 20% in equity.
What are the fees for extra repayments or paying off the loan early?
Like traditional mortgages, many commercial loans have a fee for early repayment of the loan. This will be discussed when you speak with your broker as per the lender’s terms. Check for any extra fees that may be associated with the loan.
What are the credit rating requirements for commercial mortgages?
This, again, will depend on the lender’s requirements. Generally, however, you should have a good to excellent credit rating to be approved for any loan. A proficient broker will be able to source a loan for borrowers with bad credit, although the rate might be higher than a borrower with a good credit score.
Using a broker to find the perfect commercial mortgage for you and your business is an ideal alternative to navigating the daunting world of borrowing by yourself. Be sure to investigate the broker and their reputation, and make sure that you are compatible in what your ideals are to borrow for your business.