If you’re like most of my business clients, you’ll find yourself in a situation at some point where you need more space to do more business. You may have outgrown your current location or want to expand beyond it. Buying property could enable you to serve your customers better, move your company forward, and grow more successfully. One of the most common ways of securing business real estate is through a commercial mortgage.
In its April 22, 2013, blog post, CanEquity.com defines a commercial mortgage as “a loan for real estate that is used for business.” According to CanEquity.com, commercial mortgages are ideal “for properties that are used for office space, retail, manufacturing and other non-residential services.” If you’re in need of some office space, are thinking of expanding your business operations, or planning a land development project, this type of long-term loan is definitely worth considering.
Pros & Cons of Commercial Mortgages
Commercial mortgages are advantageous for the following reasons:
- A variety of specialized lenders exist, all offering competitive commercial financing terms and rates
- Ability to finance real estate renovations and purchases, if you don’t have the funds in full
- Puts you in a better position to engage in refinancing or debt consolidation
- Approval is based on more than just personal income, assets, or personal credit
- Loans are available from $50,000 to $50 million
On the other hand, commercial mortgages also have the following cons:
- Almost all commercial lenders charge a service fee
- Lenders will typically lend up to 75% of the property’s appraised value
- Extensive documentation must be provided (appraisal, environmental, and building condition reports)
- Total cost to obtain mortgage is usually between 2% and 4% of the total loan amount
Commercial Mortgages: Other Considerations
Commercial mortgages are more than just a business loan or leasing agreement; they’re secured loans against real estate assets and are not always the best option for every situation. If it is a viable option for your business, keep in mind the equity you have as it will impact what kind of terms and rates you will receive (better equity=better rates).
Commercial mortgages are more complex than a residential home mortgage, have a longer turnaround time, and require more preparation on the applicant’s part. A business considering a commercial mortgage may also want to work with a mortgage broker who is experienced in this area as he/she will help you get the mortgage rate that you actually qualify for.
A knowledgeable broker will also be able to find the right solution for your situation, especially if it is a highly unique one. Having an expert guide you through the complexities of applying for a commercial mortgage can make all the difference. In addition to this, the requirements for qualifying are extensive, and can be a little overwhelming. A broker can help ensure that you have met all the requirements so that your application isn’t delayed, or worse, rejected.
Other Property Loan Alternatives
If a commercial mortgage isn’t an option right now, don’t be discouraged. There are other financing options available such as bridge loans, participating loans, and land development loans. Depending on your company’s financial situation and the type of project you’re planning, you may be able to take advantage of these other loan alternatives. Talk to your broker to find out what your options really are.
The opportunity to do more business depends on your ability to secure the necessary space. This, in turn, depends on your ability to secure a commercial mortgage. Ensure your business’s future growth and success by talking to an experienced mortgage broker and getting the right commercial mortgage for your project.
Brokers for Life offers complete commercial mortgage services for business projects of various size and scope. We have established relationships with a broad network of lenders across Canada and can access the best rates and terms to find the right solution for you. Contact us to find out how we can help.