Are you looking into commercial mortgage loans to expand or to relocate your business? Understanding the application and approval process can help you achieve a greater degree of success in the financial marketplace. These loans can help you expand your business by building additional facilities or relocate to a more desirable area within your region. Here are seven of the most important things you should keep in mind when obtaining a commercial mortgage loan for your business.
Criteria for Qualification
In general, commercial mortgage lenders use two primary criteria to determine whether you will qualify for these lending arrangements:
- Loan-to-value ratios are considered to ensure that the lender has sufficient collateral for the property.
- Debt service coverage ratios measure the ability of the property to generate revenues adequate to pay the debt incurred for these commercial properties.
Other criteria may also be considered to determine whether the lending institution can approve the commercial loan.
Location of Property
Just as with residential properties, the location of commercial properties will affect the potential uses of these real estate holdings and the likelihood of approval for a commercial mortgage. A property in a desirable location will be easier to resell and may appreciate in value more quickly, making it more attractive to buyers and lenders.
Business Credit Ratings
Most lenders will also consider your company’s credit rating and past credit history when determining whether you are a good candidate for a commercial mortgage loan. While these are not the only factors used by traditional lenders, they can have a significant impact on the outcome of your application.
Commercial mortgages generally feature shorter terms of repayment than comparable residential mortgage arrangements. Some loans offered by the Small Business Administration (SBA) may allow for 25-year repayment schedules. Five to 20-year commercial mortgages, however, are more common.
Different Types of Commercial Mortgage Loans
You can choose from a number of different government-insured and traditional mortgages, including the following:
- SBA 7(a) loans can be funded in 60 to 90 days and are backed by the SBA. These financial arrangements can feature loan terms of up to 25 years.
- CDC/SBA 504 loans offer 90 percent financing for qualified companies and typically are designed to span 10 to 20 years in duration.
- Traditional loans offer somewhat greater flexibility than government-backed loans. Qualifying for these loans, however, can sometimes be more difficult.
Alternative lending arrangements can often be designed to suit your precise needs, allowing you to enjoy greater flexibility when acquiring new properties.
Many commercial mortgages feature balloon payments that are designed to pay off the loan, and that can occur after a specific number of years have elapsed. Making sure that the funds are in place to make these balloon payments can be critical to the financial stability of your company in the future.
Alternative Lenders Can Be More Flexible
Going with an alternative lender like ReProp Financial for your commercial mortgage loans can reduce the amount of time needed for approval and disbursal of your funds. This can help you take advantage of limited-time opportunities in the real estate marketplace. Additionally, alternative lenders can often approve higher-risk loans for a somewhat higher interest rate, making it easier to find the funding you need even if your business has limited credit or other issues in its past.
Considering an alternative lending company can help you achieve the most beneficial commercial mortgage arrangements and can deliver much-needed flexibility for your business now and in the future.