Q and A with a Commercial Mortgage Expert

There are a lot of questions surrounding commercial mortgages. These unknowns can be intimidating to may business owners whether they are new or seasoned professionals. We thought it might be helpful to take the time and ask a mortgage expert some of the most frequently asked questions surrounding commercial mortgages. This is what they had to say...

What is a commercial mortgage?
A commercial mortgage is a mortgage loan made using commercial real estate as collateral to secure repayment. It's a lot like a residential mortgage, the main difference being the property being used as collateral is a commercial building or some other kind of commercial real estate.

Does the person securing the loan have to run the business that exist in the commercial property?
No they don't have to but they can. The client who has secured the loan has a choice of whether or not they want to run a new business or an existing business from the premises. It is also possible to rent the premises to a 3rd party. A good example of this would be a shop that the client runs there own business from, or even leases out to another 3rd party business.

Does the person securing the loan need to be the owner of an Llc or any other form of legally established business?
No they don't. The money provided from a commercial mortgage can be applied to the name of an individual and does not have to be in the name of a business entity. In most circumstances however we see loan applications in the name of a company rather than an individual.

Is there only one kind of commercial mortgage?
No there is not, in fact there are a few different kinds of commercial mortgage types. There is what is considered a first lean, when the collateral is being used against a commercial property. If this has not produced enough funding and the client needs more they can go for a 2nd lean. The 1st and 2nd lean can be acquired though different lenders.

What can the loan money be used for?
The money can be used for a wide range of purposes like raising capitol, consolidation, property improvement, general business purposes, and even the majority of legal purposes.

Can an existing business be purchased?
Yes, someone can in fact purchase an existing business but only if they also purchase the property in which the business is located. The collateral is always the actual brick and mortar, the property it self. This is the key element and distinguishing factor of a commercial mortgage loan verses other business loans.

What if the business is a start up, what are the available options then?
You can get a commercial mortgage for a start up business, but the same rules still apply, you must have a commercial property to secure the loan against. Popular examples of this include, bed and breakfasts, shops, hotels, warehouses, land, farms, and many other kinds.

Why get a mortgage broker?
A mortgage broker knows a lot more than the average person like the various products and loan types available. They also know who the leaders are and what they have to offer. The also have access to exclusive rights that are now usually available to the general public.