If you're a small business owner, it's highly probable that you run day-to-day business operations out of your home, depending on what kind of business you own. However as your company grows, expansion options need to be addressed. This is where commercial mortgage loans comes into play. Commercial mortgages involve buildings or warehouses for use by businesses.
Commercial Mortgage Loan Process
The process and steps involved in obtaining a commercial mortgage loan is very similar to that of a home mortgage. With a commercial mortgage though, if your business has a solid line of credit which is separate from your personal line of credit, then it's your business credit that can be used to lock down the loan. Prior to applying for a commercial mortgage loan, be sure to have all of your financial information in order and documentations prepared for presentation to the lender. It's also important to remember the viewpoint of the home mortgage lender. Commercial mortgage loans pose a higher risk to the lender in comparison to home mortgage loans as they are most commonly used for start-up businesses, which have the possibility of failure. With that in mind, if the purpose of your commercial mortgage loan is for your start-up business, make sure you have an adequate business plan that highlights all of the specifics as well as detailed information concerning businesses finances.
Pros and Cons of Commercial Mortgages
As with any major decision that will be affecting you most, if not all of your life, advantages and disadvantages need to be taken into consideration and addressed accordingly before coming to any final conclusions. In the case of a commercial mortgage loan, the following must be evaluated:
PROS
- Your lender is only entitled to an interest return on the mortgage, and not an actual percentage of ownership. Translation: with a commercial mortgage loan, you retain full ownership.
- You can get a tax break because interest payments on your commercial mortgage loan are tax deductible and are made with pre-tax funds.
- You can maintain a smoother cash flow with a commercial mortgage loan as capital that would otherwise be unavailable is made easily accessible to you with lower up-front payments and a suitable repayment plan.
- Commercial mortgage schedules are predetermined which makes the task of managing your financing more efficient.
CONS
- You do have to put up collateral when taking out a commercial mortgage loan. If for any reason you default on the mortgage, the lender has a right to foreclose the property and sell it in order repay the outstanding money owed to him/her.
- A commercial mortgage loan lender can identify several different possible incidents that default consequences may be applied to. These include things such as missing a payment, filing for bankruptcy, and any other event that may be identified as a so-called "no, no" on the mortgage agreement.
Choosing Commercial Mortgage Lenders
Once you have decided that a commercial mortgage loan is right for you, you'll need to start searching for a lender. Because there are so many commercial mortgage lenders out there who are all competing by offering varying mortgage rates, terms and options, your best source for finding the right lender may be through a broker. The job of a commercial mortgage broker is to shop around and find the best deal for you.
Whether you depend on a mortgage broker or do your own research to find a commercial mortgage loan, remember to evaluate all of your options thoroughly and make sure you get the best deal as you possibly can.
By: Mevish Jaffer
