Interested in learning more about commercial mortgages?
It doesn’t matter whether you’re moving into, renovating, buying or leasing commercial real estate, you’ll need to understand the different financing options you have. Commercial mortgages are the main type of available financing for these types of purchases.
Please read on to find out what you’ll need to know beyond the interest rate.
- The loan-to-value ratio is one of the more important terms that you’ll need to know. This is the part of the property’s value that the lending institution is willing to finance. Generally, banks offer 75 to 100% of the commercial real estate’s value. That depends on several factors including the buildings resale ability and condition. If there is a shortfall, the difference needs to come from personal funds or a businesses working capital. Remember that a higher loan to value ratio means that a business will have more money to invest or cover any cash shortages. This is one of the major pieces of most of the commercial mortgages you’ll find.
- The amortization period is another variable. For most commercial real estate deals this ranges from 25 down to 15 years. Some companies prefer longer amortization periods so more money can stay with your business in the near-term.
- Flexibility when it comes to the terms of loan repayment is another important consideration. Look for the possibility of wiggle room on principal payments for several years post transaction. This can allow small business to absorb costs and any disruptions involved with location moves. Flexibility can also cover cash shortages so a business can make interest-only payments for a few months in a row.
A lending institution might be able to absorb some of the renovation costs into commercial mortgages. This is especially true if they add to the property’s value.
