A commercial mortgage is a loan that is being used to buy a commercial property that your business is going to occupy. Most of the time this requires that your business occupy the majority of the space, meaning 51% or more. Then the rest of the space can be leased to other tenants. The types of buildings and uses can vary widely to include retail space, office building and also mixed use properties. If you are interested in owning commercial property then you will want to have a better understanding of the five types of loans that are available.
For a newer business, a traditional mortgage is going to hold the most potential. The caveat is that you, as the owner, must have a good credit score of 700 or more in most cases. The terms of this loan would likely include financing 65% to 85% of the property value and you would need to make a down payment of 15% to 35% of the purchase price. There is no cap on the loan amount and typical term can range from 5 to 20 years. This is a great option for a business which is 1- 5 years old.
Small Business loans are available to more established businesses and have a slightly lower credit score requirement for the owners. They require a score in the neighborhood of 680. The SBA 7(a) loan offers up to 100% financing and a term of 25 years, while the SBA 504 loan provides up to a 90% loan and has a shorter term of 10 – 20 years. The 7(a) has a cap of 5 million while the 504 has no maximum loan amount.
There are also a couple of short term mortgage options that you should be familiar with. A commercial bridge loan is a short term loan that is used when you are planning to refinance in the future. These loans have a term of six months to thirty six months and typically have a faster approval time than other loans. The requirements for this loan are not as strict as some others and they are a great fit for a buyer who is looking to renovate and resell a property. The other option is a hard money loan. This loan is often a term of 1- 3 years and is the fastest way to procure a loan if you have a previous commercial borrowing history. Some loans can be approved in just a few days.
Finding the best mortgage to meet your current and future needs is critical. You also need to temper your desires to meet your qualifications and the situation of your business. Having a good personal credit score can position you to have more options but it is important that your business also be in a stable position to maintain the mortgage as well as your operating expenses. Finding that balance will allow you to be successful in your mortgage search and your future profitability.
Dennis Dahlberg Broker/RI/CEO
NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701
About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.
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