Commercial property mortgages – what borrowers should do

Commercialproperty mortgages are generally used by businesses to acquire business assets,business expansion, business real estate refinance etc. This type of loan issecured by collateral in the form of commercial property, which will be used bythe lender to recover the full amount of the loan outstanding in the event ofdefault on the part of borrower.

There are mainly three sources of commercial property mortgages - banks,third-party lenders and commercial mortgage brokers.

Banks are usually the first stop for any kind of loansand commercial property loansare no exception, however borrowers with a bad credit record or who are new tothe business may find getting approval from the banks rather difficult. Thirdparty lenders usually serve such borrowers. They can provide mortgagesmore quickly and with less documentation. Third-party lenders charge asignificantly higher interest rate than banks.

Commercial mortgage brokers don't provide mortgagesdirectly. Instead, they investigate many banks and lenders to find you the rightmortgage suitable for your business and at the most competitive price.

Whilecommercial property loans are a very commonbusiness activity, the requirements to qualify for such a loan are quitestrict. However if all the requirements are met and the application is foundcreditworthy, it typically takes around 60 days to disburse the loan. Followingis a discussion on the steps commonly required of the borrowers.

Steps to be taken by theborrowers

Property hunting: Thisis first and foremost requirement, the borrower needs to have finalized abuilding or land before going for the commercial property mortgage. Even if theborrower has the buyto let commercial mortgage in mind, they need to have tenants to convince thelender of the repaying capacity of the property.

Find a lender: Thenext step is finding a lender. This is one of the most important steps as theright lender will not only approve the application quickly, but also will helpthe borrowers prepare for the application process. Here brokers can play a veryimportant role as they are networked to a number of lenders and will help workout the best commercial mortgage rates and terms within a shorter period oftime. 

Complete a loanapplication: Here the actual process of loan applicationstarts. It seems a pretty simple task but one should be very careful whilefilling in various details as any false or unsubstantiated (by valid documents)information or claim can seriously damage the success prospects. Remember,lenders are experts at scrutinizing the applications and it is very difficultto camouflage the actual facts from them. Rather give them the actual pictureand explain the reasons honestly.

Provide documentation: Thisis the Holy Grail for the lenders and with good reason, all claims are justclaims without proper documents to support them, with backing documents theseclaims become facts. So lenders ask for detailed financial statements from theprevious three years, including business and personal records. These wouldinclude operating statements, bank records, tax returns and corporatefinancials. Prepare these documents carefully as they may make or break the commercial property loanapplication. Take professional help to prepare them.

Hire a lawyer: Aproperty transaction is full of legal formalities, so hire a competent lawyerwhile purchasing a commercial property mortgage. They are experts at presentingand interpreting legal documents. They will help finalize the best terms andconditions.