Updated: Aug 28
If you're looking to purchase or refinance commercial property, you might need a commercial mortgage. However, navigating the world of commercial mortgages can be complex and confusing. In this article, we'll cover everything you need to know about commercial mortgages, from what they are to how to qualify for one, and how working with a licensed brokerage like Bennett Capital Partners can help you get the financing you need.
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Bennett Capital Partners is a fully licensed Commercial and Residential mortgage brokerage company, with 22 years of experience in the industry. We specialize in providing innovative and flexible financing solutions for a wide range of property types and credit scenarios. In this article, we'll take a closer look at commercial mortgages and provide you with all the information you need to decide if a commercial mortgage is right for you, and how working with Bennett Capital Partners can help you get the financing you need.
What is a Commercial Mortgage?
Working with a mortgage broker can greatly enhance your experience when securing a commercial mortgage. A mortgage broker acts as a mediator between borrowers and lenders, leveraging their expertise and industry connections to help you find the best loan options for your commercial property needs. They will assess your financial situation, gather the necessary documentation, and present your application to multiple lenders, increasing your chances of securing favorable terms and competitive interest rates. A mortgage broker will guide you through the complex process, explaining the intricacies of commercial mortgages and ensuring you make informed decisions. With their knowledge and support, you can navigate the loan process with confidence and achieve your commercial property goals.
A commercial mortgage is a financial product specifically designed for the purchase or refinancing of commercial properties. These properties are utilized for business purposes and encompass a wide range of establishments, including office buildings, retail centers, warehouses, and apartment complexes. Unlike residential mortgages, commercial mortgages generally involve larger loan amounts, often ranging from hundreds of thousands to millions of dollars. Additionally, the repayment schedule for commercial mortgages tends to be longer, with loan terms spanning from 5 to 30 years.
Types of Commercial Mortgages
There are several types of commercial mortgages available, each with its own set of benefits and drawbacks. Here are some of the most common types of commercial mortgages:
Traditional Commercial Mortgages
Traditional commercial mortgages are offered by banks and other traditional lenders. They typically have lower interest rates than other types of commercial mortgages, but they also have more stringent qualification criteria.
SBA 7(a) Loans
SBA 7(a) loans are offered by the Small Business Administration (SBA) and are designed to help small businesses purchase or refinance commercial property. SBA 7(a) loans have more relaxed qualification criteria than traditional commercial mortgages, but they also have higher interest rates.
SBA 504 Loans
SBA 504 loans are also offered by the Small Business Administrationand are designed to help small businesses purchase or refinance commercial property. SBA 504 loans have lower interest rates than SBA 7(a) loans, but they also have more stringent qualification criteria.
Bridge loans are short-term loans that are used to bridge the gap between the purchase of a new property and the sale of an existing property. They typically have higher interest rates than other types of commercial mortgages and are meant to be paid off within a year or two.
Hard Money Loans
Hard money loans are short-term loans that are secured by the property being purchased. They are often used by real estate investors who need quick access to funds and can't qualify for traditional financing. Hard money loans have high interest rates and are meant to be paid off within a year or two.4.
Who Can Get a Commercial Mortgage?
To qualify for a commercial mortgage, you'll need to meet certain criteria. Here are some of the most important factors that lenders will consider:
Qualifying Criteria - Lenders will look at a variety of factors to determine if you qualify for a commercial mortgage, including your credit score, income, and financial history.
Credit Scores and Financial History - Lenders will review your credit score and financial history to determine your creditworthiness. A higher credit score and a clean financial history will increase your chances of qualifying for a commercial mortgage.
Property Type and Usage - Lenders will also consider the type of property you're purchasing and how you plan to use it. Some types of commercial property are riskier than others, and lenders may be hesitant to finance certain types of properties.
Down Payment and Loan-to-Value Ratio - Commercial mortgages typically require a larger down payment than residential mortgages. The down payment for a commercial mortgage can range from 10% to 30% of the property's value. Lenders will also look at the loan-to-value ratio, which is the ratio of the loan amount to the property's value.
How to Apply for a Commercial Mortgage
Applying for a commercial mortgage can be a complex process. Here are some steps to follow:
Preparing Your Business Plan
Lenders will want to see a detailed business plan that outlines your goals and financial projections. Your business plan should also include information about the property you're purchasing and how you plan to use it.
Gathering Financial Documents
Lenders will also require a variety of financial documents, including tax returns, bank statements, and financial statements. Make sure you have all of these documents in order before you apply for a commercial mortgage.
Working with a Licensed Brokerage
Working with a licensed brokerage like Bennett Capital Partners can make the commercial mortgage application process smoother and more streamlined. Our team of experienced professionals can help you prepare your application, gather the necessary documentation, and connect you with lenders that fit your needs.
Submitting Your Application
Once you've gathered all of the necessary documentation, you can submit your application to the lender. The lender will review your application and let you know if you've been approved for a commercial mortgage.
Commercial Mortgage Interest Rates
Commercial mortgage interest rates can vary widely depending on a variety of factors. Here are some of the factors that can affect interest rates:
Factors Affecting Interest Rates
Interest rates for commercial mortgages are influenced by a variety of factors, including the current state of the economy, the lender's risk assessment, and the property's location, type, and usage.
Fixed-Rate vs. Adjustable-Rate Mortgages
Commercial mortgages can be fixed-rate or adjustable-rate. Fixed-rate mortgages have a set interest rate for the life of the loan, while adjustable-rate mortgages have a variable interest rate that can change over time.
How to Get the Best Interest Rate
To get the best interest rate on a commercial mortgage, it's important to have a strong financial profile and to shop around for lenders. Working with a licensed brokerage like Bennett Capital Partners can also help you find lenders with competitive rates.
Commercial Mortgage Fees and Closing Costs
In addition to interest rates, commercial mortgages also come with fees and closing costs. Here are some of the most common fees and closing costs associated with commercial mortgages:
Loan Origination Fees
Loan origination fees are fees charged by the lender to process and underwrite the loan. These fees typically range from 0.5% to 2% of the loan amount.
An appraisal is required to determine the value of the property being purchased or refinanced. Appraisal fees can range from a few hundred to a few thousand dollars.
Title fees are charged to ensure that the property being purchased has a clear title. These fees can include title search fees, title insurance fees, and recording fees.
Environmental Assessment Fees
If the property being purchased is located in a high-risk area, an environmental assessment may be required to ensure that the property is not contaminated. Environmental assessment fees can range from a few hundred to a few thousand dollars.
Closing costs include a variety of fees associated with the finalization of the loan. These can include attorney fees, notary fees, and escrow fees.
Repaying a Commercial Mortgage
Commercial mortgages are repaid over a set period of time, typically ranging from 5 to 30 years. Here are some of the key features of repaying a commercial mortgage:
Commercial mortgages are typically amortized, which means that the loan payments are structured so that the principal and interest are paid off over the life of the loan.
Some commercial mortgages may include a balloon payment, which is a large payment that is due at the end of the loan term. Balloon payments can be risky, as they require a large sum of money to be paid off at once.
Some commercial mortgages may include prepayment penalties, which are fees charged for paying off the loan early. Make sure to review the terms of your loan carefully to avoid unexpected fees.
Risks and Benefits of Commercial Mortgages
Like any financial product, commercial mortgages come with risks and benefits. Here are some of the key risks and benefits of commercial mortgages:
Commercial mortgages can be risky, as they require a large amount of capital and are typically secured by the property being purchased. If the property value drops or the borrower defaults on the loan, the lender may take possession of the property.
The benefits of a commercial mortgage include the ability to purchase or refinance commercial property, which can provide a steady stream of income through rent or lease payments. Additionally, owning commercial property can provide tax benefits and long-term capital appreciation.
Working with Bennett Capital Partners
Bennett Capital Partners is a licensed commercial and residential mortgage brokerage company with over 22 years of experience in the industry. We specialize in providing innovative and flexible financing solutions for a wide range of property types and credit scenarios.
Our team of experienced professionals has a deep understanding of the market and the needs of our clients. We work with a wide range of lenders to find the best financing options for our clients.
We offer a wide range of services, including commercial and residential mortgage lending, loan servicing, and investment advisory srvices.
Our Commitment to Clients
We are committed to providing the best experience possible for our clients. We understand that each client has unique needs and goals, and we take the time to get to know each one of them. We pride ourselves on our ability to provide innovative and flexible financing solutions, as well as our quick turnaround times and competitive rates. We believe that building established relationships with realtors and investors is key to our success and growth.
If you're looking to purchase or refinance commercial property, a commercial mortgage may be the right solution for you. However, navigating the world of commercial mortgages can be complex and confusing. By working with a licensed brokerage like Bennett Capital Partners, you can ensure that you get the financing you need while avoiding common pitfalls.
We hope that this article has provided you with a comprehensive overview of commercial mortgages and has answered any questions you may have had. If you have any further questions or are interested in working with us, please don't hesitate to contact us today.
What are commercial mortgages?
Commercial mortgages are loans that are used to purchase commercial property, such as office buildings, retail stores, and warehouses.
Commercial mortgages are typically more expensive than residential mortgages, but they offer a number of advantages, such as longer terms and lower interest rates.
Who is eligible for a commercial mortgage?
Businesses that have a good credit history and a steady income are typically eligible for commercial mortgages.
The amount of money that a business can borrow depends on its credit score, income, and the value of the property it is buying.
What are the benefits of getting a commercial mortgage?
Commercial mortgages can help businesses to grow and expand.
Commercial mortgages can provide businesses with access to capital that they would not otherwise be able to obtain.
Commercial mortgages can help businesses to improve their credit scores.
How do I find the best commercial mortgage?
Compare rates from different lenders.
Use a mortgage calculator to estimate your monthly payments.
Compare the total cost of different loans.
Consider the interest rate, the down payment requirement, the debt-to-income ratio, and any fees that may be associated with the loan.
Philip is the owner and Licensed Mortgage Broker at Bennett Capital Partners, Bus. NMLS # 2046828. He earned his degree in Accounting and Finance from Binghamton University and holds a Master's Degree in Finance from NOVA Southeastern University. With more than 20 years of experience, Philip has been a leader in the mortgage industry. He has personally originated over $2 billion in residential and commercial mortgages.
Learn more about Philip Bennett's background and experience on our Founder's page. Whether you're a florida first-time homebuyer or a seasoned real estate investor, our team is here to help you achieve your real estate goals. Don't wait any longer, contact us today and let us help you find the right mortgage for your needs.
If you're interested in learning more about commercial mortgages or any other commercial real estate topic, don't hesitate to check out my Total Commercial profile for more information. As an experienced commercial real estate agent, I'm dedicated to helping my clients succeed in the commercial real estate market. Contact me today to learn more about how I can help you achieve your commercial real estate goals.
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