Securing a commercial mortgage for your business is a significant financial decision, one that requires careful consideration. Whether your business plans include purchasing a new property, refinancing an existing loan, expanding your operations, or attaining operating capital, choosing the right commercial mortgage is crucial for your business’s financial health and sustainability.
Here are eight keys to consider as you go through the process of selecting the best commercial mortgage for your unique business needs.
- Your Business Objectives and Requirements
Before delving into the range of commercial mortgages available, it's crucial to clearly define your business objectives and financial requirements. Purchasing a new property requires a different type of loan than if you’re refinancing a loan you already have. If you’re planning an expansion project, for example, you need to have the business plan for the project, with all the options and variables, so you have a clear understanding of the funding you’ll need. That will help you tailor your search and find a mortgage that aligns with your specific needs.
- The Financial Health of Your Business
It’s a basic business practice for a lender to carefully review your financial health when evaluating your mortgage application. Before meeting with a lender, be sure your financial records are up to date, accurate, and well-organized. Key financial data such as cash flow, profitability, and debt-to-equity ratio could be pivotal in the lender's decision-making process. A thorough assessment of your financial health on your part will also give you insight into the amount your business can realistically afford to borrow. When you get to the point where you start meeting with lenders, be sure to ask about the financial qualifications. Some lenders, like Apex Commercial Capital, are more flexible than others.
- Mortgage Types
There is a relatively wide range of commercial mortgages, each with its own set of terms, interest rates, and repayment structures. The two main categories are fixed-rate and variable-rate mortgages. Fixed-rate mortgages offer stability with a consistent interest rate over the loan term, while variable-rate mortgages provide initial cost savings, but the rate changes over the life of the loan, so they come with the risk of interest rate increases. Ask yourself how much you’re willing to risk and plan for rate and payment changes. Examine your financial strategy to determine which type of mortgage is best for your business.
- Interest Rates and Terms
Needless to say, interest rates significantly impact the overall cost of your mortgage and will play a major role in which mortgage you select. Carefully compare current market rates, consider the length of the loan term, and ask potential lenders about any variables that could lower the rate on your loan. Then, assess the pros and cons of each option based on your business's financial strategy and objectives, as well as immediate needs vs. long-term expectations.
- Loan Fees and Closing Costs
Be aware that there are additional fees and costs beyond the interest rate. You’ll need to consider additional fees and closing costs associated with whichever commercial mortgage you choose. Common fees include loan origination fees, appraisal fees, legal fees, and prepayment penalties. Factor these costs into your financial forecasts to ensure you have a complete understanding of the total financial commitment. Also, again, be sure to discuss fees and additional costs with your lender.
- Loan-to-Value Ratio (LTV)
Another key factor in commercial mortgage considerations is the Loan-to-Value ratio – the ratio of the loan amount in relation to the appraised value of the property. Lenders often have maximum LTV ratios – if you have a lower ratio, you may be able to secure more favorable loan terms. You may need to consider making a more substantial down payment to achieve a lower LTV ratio, demonstrating your commitment to the investment, and reducing the lender's risk.
- Loan Repayment Structure
Commercial mortgages offer several repayment structures, including amortizing loans and interest-only loans. An amortizing loan involves regular payments that include both principal and interest, gradually reducing the loan balance over time. With an interest-only loan, on the other hand, you’re only required to make interest payments – you pay the principal in a lump sum at the end of the term. Review the available repayment options with your lender and choose the one that aligns with your cash flow and long-term financial plans.
- Lender Reputation and Relationship
Choosing the right lender might be the most important decision you make. It’s certainly as important as the rate and terms of the mortgage you select. With a commercial mortgage, as opposed to a personal loan, you’re choosing a business partner. You want a lender you feel comfortable working with for the long term, one you trust to help you achieve your business goals. Research the reputation and track record of any potential lenders. Consider their commercial lending experience, their customer service, responsiveness, and flexibility. Building and maintaining a strong relationship with your lender can be crucial, especially when navigating complex financial transactions or seeking future financing.
Choosing the right commercial mortgage for your business
Selecting the right commercial mortgage for your business involves a comprehensive assessment of your goals, financial health, and the intricacies of various mortgage options. By considering these key factors, you can make an informed decision that will help ensure your business’s long-term success and stability. Remember, securing a commercial mortgage is not just a financial transaction; it's a strategic partnership that can significantly influence your business growth.
Apex Commercial Capital is a full-service lender focused on providing commercial mortgages and equipment financing to small businesses. We understand that the borrower is more than a credit score – we consider all the relevant financial information when reviewing a loan request, looking beyond the numbers to understand each business owner's objectives in determining how we can best work together to achieve them. Call (800) 262-APEX today to talk with our team of small business mortgage specialists.