Buying a commercial property to set up a new mall (such as a store, office, or warehouse) or to expand an existing location is a challenging commitment for a business. This is usually done using a commercial property mortgage. Businesses’ access to this type depends on various factors that make them easy for applicants to identify.
What are the requirements for receiving a commercial property mortgage?
Lenders usually announce three requirements before giving a commercial mortgage to a business. These requirements relate to commercial finance, personal finance, and applicants’ asset.
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Commercial finance
Typically, commercial property mortgages require careful considerations. From the point of view of lenders, small businesses are considered risky, and many of them ultimately fail. Banks and commercial lenders often check applicants’ offices to see if their business has the needed cash flow to repay the mortgage.
Lenders usually calculate the debt service coverage ratio of applicants. This ratio is the annual net operating income (NOI) divided by the total annual debt service (principal repayment amount and debt interest).
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Commercial credit
The lender also reviews the applicants’ credit score to measure their access to the commercial mortgage and the conditions – interest rate, repayment period, and deposit condition – that apply.
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Personal finance
One owner or several partners usually run small businesses. Banks and commercial lenders want to check applicants’ credit scores and backgrounds to see if they have had financial problems in the past, such as expropriation, court rulings and more. A low credit score can damage applicants’ chances of getting a mortgage.
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Property specifications
The property financed by the mortgage acts as collateral, and the lender will be allowed to seize the collateral property if it is not paid on time. But to be eligible for a commercial property mortgage, the applicant’s business usually has to own at least 51% of the building.
How to choose a commercial property lender
When a business owner wants to get a commercial mortgage for the property, there are different mortgages and lenders to choose from. So, it is important to find a lender who offers the type of mortgage they want and has the appropriate rates that applicants can afford it. Things to consider when choosing a lender are:
- Search for available mortgage options
- Mortgage costs
- Interest rate
- Required documentation
- Deposit amount
- Existence of fast financing options or bad credit (if needed)
How should an applicant prepare for the application process?
Applying for a commercial mortgage can be time-consuming and often requires much paperwork. But in general, banks and lenders ask applicants to provide this common information:
- Tax returns
- Financial records and reports
- Bank statements
- Information on collaterals
- Valued property
- Business plan
How can a business increase its chances of being approved?
Owners of poorly credited businesses or new businesses may face more obstacles when applying for a commercial property mortgage. But there are some things business owners can do to help increase their chances of getting commercial property mortgages.
- Pay off existing debts and improve credit scores
- provide new documents
- Add an investor or partner
- Pay more deposits and agree to a mortgage at a higher interest rate
- Choose a cheaper property
As mentioned above, financing a commercial property comes with many challenges and issues. Providing for lenders’ requirements, selecting the type of lender, and preparing the documentation they need, along with credit score improvement, are some of the things that make it difficult for borrowers to finance a commercial property.
The importance of using SWG Mortgage advisors
SWG Mortgage specialist advisors have extensive experience in commercial property finance and can assist borrowers with their extensive search in the commercial property mortgage market.
Moreover, SWG Mortgage advisers help commercial property borrowers choose from various lesser-known lenders and guide how to increase borrowers’ chances of getting a commercial mortgage. They will be with the borrowers in the various stages of obtaining the mortgage to organise the relevant documents quickly.
