Everything you need to know about commercial mortgage brokers
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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.
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These kinds of loans are structured to meet the needs of the individual 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. They can help negotiate on a borrower's behalf to secure a better deal, and can help guide a borrower through the application process.
Why use a commercial mortgage broker?
Commercial brokers are well-versed when it comes to liaising with banks and financial institutions and finding the best loans to suit 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.
Commercial finance deals can be quite complex and difficult to navigate. This is why a good commercial broker's expertise can be a valuable tool.
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. Factories and warehouses are sometimes included in this category, although these properties are sometimes considered 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, or smaller properties housing only a single business. Warehouse buildings are defined as properties that are used to store business products and supplies.
- Retail buildings: Malls or shopping centres are considered 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. The business and the owning entity, whether it be you as an individual or not, must have a solid credit history to be approved.
When assessing your loan, lenders will consider:
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. The property 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
First and foremost, 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.
You should also consider the panel of lenders your broker works with. Brokers that have access to a broad array of lenders may be able to negotiate a better rate for you.
Experience is also an important factor, particularly considering the complexity of most commercial lending deals. Research the broker’s reputation to ensure that the broker and the company they work for are reliable.
Also, ensure that your broker is part of an industry 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 relationship 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?
Commercial loans tend to require larger deposits than residential mortgages. Many lenders will require at least a 35% deposit, though some may accept as little as 20%. If you use a residential property as security for the loan, you may be able to borrow up to 100%.
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.
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