Guide to Commercial Mortgages
It’s important that you understand what to expect when applying for a commercial mortgage, all too often business owners need money quickly and accept the first deal they find. When considering which commercial mortgage to choose you should take the time to fully research the options open to you. Educating yourself about commercial mortgages can help you avoid common pitfalls.
Building a solid foundation of knowledge about the commercial mortgage borrowing process is important. Here are a few steps to help you begin your journey:
Before you apply for a commercial mortgage try to find out as much as possible about what’s available in the market place.
Gather all your financial documents; check your company’s credit history and fix any blemishes on your credit file before you apply for a loan.
If you have any accounts make sure they are available, if you are starting a new business then a basic business plan is invaluable.
Determine how much you can truly afford to borrow, create an accurate budget and cash flow.
Keep accurate notes; make a file and keep all loan documents and correspondence in that file.
Once you have established that you need a commercial mortgage start shopping for a commercial lender or broker and be prepared to compare costs. Be suspicious if anyone tries to steer you to just one lender. Don’t be afraid to find out which commercial lenders they work with and ask them to justify their recommendation.
Whether you have credit problems or not, it’s a good idea to review your credit report for accuracy and completeness before you apply for a commercial mortgage. If there is inaccurate information in your credit report you should attempt to correct it. More information about a businesses financial affairs is available to lenders now, so it is important to ensure that this information is correct.
If your credit report does contain negative information, that is accurate, but stemming from unique circumstances such as illness or temporary loss of income, be sure to explain your situation to the lender or broker. Don’t assume that the only way to get a commercial mortgage is to pay a high price.
Before you start shopping for a commercial mortgage you’ve got to work out how much you can afford to pay each month. You can do this yourself before applying for a commercial mortgage by calculating your costs and determining your financial worth. Commercial mortgage calculators are available online and can be a tool to helping you determine how much you can afford.
However, just knowing the amount of the monthly payment or the interest rate is not enough. When comparing commercial mortgages, make sure you’re reviewing the same information in each loan such as loan amount, loan term, type of loan, monthly payment, penalties and features.
A commercial mortgage often involves many fees, such as administrative fees, broker fees and transaction fees there may also be early settlement charges, and third party costs. Every commercial lender or broker should give you an estimate of its fees when you apply for a commercial mortgage.
TIP: Ask about the commercial mortgage’s annual percentage rate (APR). The APR takes into account not only the interest rate but also setup charges, broker fees, and certain other credit charges that you may be required to pay, expressed as a yearly rate. This will specifically tell you the cost of what you’re borrowing and will allow you to compare the costs of one loan to another.
TIP: Never take a verbal promise on any detail or feature of the loan that matters. You’ve a right to receive commitments in writing and a professional should never hesitate to provide this. If your lender is unwilling to put his promises in writing, you should not rely on those promises.