A Commercial Mortgage
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A Commercial Mortgage

A commercial mortgage is a loan given to an applicant to buy or expand property with the intended use to be commercial. That is, the property being purchased will not be used for personal use, but to start a business or rent to someone starting a business. The financial institute giving the loan will retain possession of the property until the loan is paid completely.
There are many different possibilities when it comes to commercial mortgages. The factors that determine these possibilities are the intended business plan, the loan to value rate of the property, and the available capital for deposit.

Types of Commercial Mortgages    

There are many different business models that are eligible for a commercial mortgage. These include but are not limited to:

  • Land for development
  • Hospitality businesses such as hotels, bed and breakfasts or pubs
  • Offices
  • Retail stores
  • Restaurants
  • Agricultural or farming properties
  • Warehouses and industrial properties
  • Properties for the leisure industries
  • Properties to rent for commercial use
  • Expansion or development of any existing business from the list above
  • Buying out others or partners share in the property
  • Remortgage of existing business loan
  • Purchase of business by existing tenant of commercial property

Loan to Value Determining Factor

            The Loan to Value ratio is a big part of your potential loan size. Depending on your business type you may get a different percentage of the loan to value ratio as your loan amount. For example, most lenders offer a maximum loan of up to 70% of the loan to value ratio. However, if you plan on opening a business that isn’t as profitable, say a Laundromat you may only be eligible for 50% of the loan to value ratio. If you plan on opening a more profitable business, such as a large retail store, you may be eligible of up to 90% of the loan to value ratio. Include this factor when determining how much capital will need to be raised before you start your business depending on what your actual business is.
            There is a possibility of financing 100% of the purchase price of a commercial property but other collateral will have to be put up. However, this type of commercial mortgage may need to be at a higher rate than a standard commercial mortgage. Considering this you may or may not go this route.
For example, if you feel confident in your business venture, you could put your house on the loan as collateral. That would significantly increase your loan to value ratio and banks would be more inclined to loan to you since they have the possibility of repossessing your home if you default on your commercial mortgage. Use this method with caution. You do not want to end up homeless if your business falls through.

 
 
     
 

 

 
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