A Guide To Commercial Mortgages
September 17th, 2007 | by Simon Rattray
Commercial mortgages are in a way just like residential mortgages. In general they are taken out by companies and will be secured against the businesses’ premises.
By taking a commercial mortgage you immediately create a business asset which is the building that the mortgage is secured against. The organization can then if needs be use this to secure further capital in the future. However it should be noted that a commercial mortgage is considered a greater risk than a residential mortgage with the rate of interest likely to be higher.
If you are looking to source a commercial mortgage then you are best to approach a specialist lender or commercial property agent. They will have experience in dealing with the particular needs of each industry. In this respect it is likely that they will be able to provide you with better solutions.
Utilizing an office brokers expertise could help you decide which lender to choose. They should be able to find the best lenders and the best deals available in commercial mortgages at any particular time. These brokers will charge a commission for there services, however. Seldom will brokers charge commission straight from the lenders.
Aside from the interest and loan amount of commercial mortgage, there are other fees that the borrower will have to absorb. A typical lender will charge about 0.5-1.5% of the mortgage as an administration fee. This amount varies from lender to lender, so try to shop around. Some lenders may not even charge an administration fee, but their actual interest rate could be higher.
The business is also liable for the cost of the valuation of the property and the processing of legal documents. A further point to note is that some lenders will also charge early redemption penalties. Our advice is to read all your contractual documentation carefully - be aware of every clause and the read small print.
You can get a fixed rate, or if you prefer a variable rate and there are a variety of repayment methods. You can choose to pay a fixed monthly payment of both interest and principal as in a repayment mortgage, or only the interest (interest only mortgage).
A business proprietor, when taking out a commercial mortgage, must have a decent credit standing. Since the owner will pay a seminal part in the organization’s running, lenders will examine policies put forward by the owner. The organization will have to have been ran competently and well be managed - and must have an unblemished credit history. Lenders will ask for audited accounts in addition to bank statements showing transactions and activities. A copy of the balance sheet must also accompany these documents. Lenders are also entitled to ask for future projections for the company.
If an organisation decides to go ahead with a commercial mortgage, it must start to organize the deposit. All required documents must be up to date to make the approval process seamless.
So there you have it, a guide to commercial mortgages. Useful information for those who are dipping their toe into the industry and require information to help them on their way in the serviced office space arena.
Simon
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