What You Need to Know About Commercial Mortgages

A commercial mortgage can help you get started with a starting business or an expansion on an existing company. To get things started, you will need to do a search of Toronto mortgage brokers to figure out your options. In many ways, a commercial mortgage works like a residential mortgage, but is often on a large scale. Common examples of commercial mortgages can include office buildings, storefront, or shopping mall.

Differences Between Commercial and Residential Mortgages

A residential mortgage is often a line of credit that provides you with a few hundred thousand dollars to buy a property. Commercial mortgages work in much the same way, but they can range from several hundred thousand dollars to many millions of dollars. Payment options for commercial mortgage bear some similarities to their residential counterparts, but also have some noticeable differences. For example, the down payment for the mortgage is likely to be significantly larger—sometimes as much as 30% of the cost of the property. The reason for this larger scale often comes down to the fact that a business has more income and financing options available. Additionally, a commercial property is likely to be significantly larger than a residence, which is usually a single-family home or small rental complex.

Credit Requirements

While a residential mortgage usually requires a credit check, so the lender feels confident in your ability to pay the mortgage, a commercial mortgage rarely involves a single credit check for approval. This is because a commercial mortgage is often made on behalf of a business rather than an individual. Note that this is not a hard and fast rule that applies to all commercial mortgages. However, if you opt for a private commercial mortgage, you can most certainly bypass the credit check process. The lender uses other measures to determine the overall creditworthiness for purposes of the loan. This might involve a look at some of your business’ finances, such as overall cash flow, but individual credit rarely becomes a factor.

Types of Properties Available

The types of property to which you can apply a commercial mortgage are vast and varied. Some possibilities include storefronts and retail sites, where you can sell directly to customers on a day-to-day basis. You can also opt for less customer-focused options, including office buildings and medical facilities. In some situations, you can use a commercial mortgage to purchase warehouses or industrial space, if you meet the zoning requirements for the property. Finally, you can even build some residential spaces using commercial mortgages. These usually include multi-family apartments or mixed-use spaces that have apartment spaces built above a storefront. The possibilities are manifold, and you can tailor the property to fit your business needs.

How to Get a Commercial Mortgage

Once you have decided the amount of money you need to borrow, you should search for commercial mortgage lenders in your area. As you do so, make sure to read through their terms carefully and determine which lender fits your business needs the best. For example, one lender might ask for more money up front but offer a lower interest rate than a competitor—in this case, you can pay less over the lifetime of the mortgage if you are able to meet the up-front costs. Remember that there is no one size fits all mortgage option; you need to select the choice that fits your business needs the best.

You can use a commercial mortgage to purchase a new property or renovate an existing property. Finding the right mortgage requires some work on your part, but it can be a terrific investment when you make the proper choice.