A small business mortgage is a commercial loan that is used to purchase commercial property. While many small business owners lease their office space, some find it more beneficial to buy it outright. And unless you are sitting on a pile of cash, there is a good chance that you are going to need a small business mortgage in order to do that.
To get a small business mortgage, you will typically need a higher down payment than you would for a residential mortgage. This can be as high as 35-50%. Fortunately, the bigger the commercial loan, the lower the interest rates usually are on the mortgage.
Applying for a small business mortgage.
If you are going to apply for a small business mortgage, it is in your best interest to be well prepared. Enlisting the help of a mortgage broker that specializes in working with small businesses – such as Akal Mortgages – is highly recommended.
A broker can explain everything that is involved with commercial mortgages and walk you through the process, helping to make sure that everything goes smoothly. Depending on the type of commercial property that you are seeking a mortgage on, working with a broker can help to save you thousands – or even tens of thousands – of dollars.
What do lenders look for when you apply for a small business mortgage?
The requirements that lenders have when it comes to commercial mortgages are quite different than those they look for when issuing residential mortgages. Criteria include:
- Building or land must be zoned for commercial use.
- Lenders will want to know about your business. They may require a business plan, financial statements, growth projections, etc.
- Lenders will want to see a good debt service coverage ratio – that is how much available cash you have to make the mortgage payments.
- Lenders will want to see a favourable loan to value ratio – that is the value of the property in comparison to the loan.
- Commercial mortgages are structured differently than residential mortgages. With a residential mortgage, you agree to pay off the loan in a certain amount of time (the amortization). With a commercial mortgage, you have the mortgage term followed by the balloon payment (after which you pay off the loan in full, refinance or sell the property).
Are you interested in a small business mortgage? If so, Akal Mortgages can help – call us today!
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