Lesson 1: Unveiling the World of Commercial Mortgages:
Introduction
Are you a savvy entrepreneur with dreams of expanding your business into a non-residential property? Perhaps you’re considering investing in a commercial property to boost your portfolio. In either case, securing the necessary funds is a critical step in turning your vision into reality.
Enter the world of commercial mortgages – a financing solution specifically designed for non-residential properties. In this blog, we’ll take a casual yet informative approach to explore what commercial mortgages are, how they work, and why they may be the perfect fit for your business aspirations.
The Basics: What is a Commercial Mortgage?
At its core, a commercial mortgage is a type of loan secured against non-residential properties. Unlike residential mortgages, which are tailored for homes, commercial mortgages are tailored for a variety of non-residential properties, including office buildings, retail spaces, warehouses, and more. Since the nature of non-residential properties varies significantly, each commercial mortgage is individually assessed, and its pricing is determined based on the associated risks.
Why Commercial Mortgages Stand Out in the Mortgage Landscape
You might be wondering, “What sets commercial mortgages apart from regular mortgages?” Well, in the realm of mortgages, small business loans up to $50,000 are often unsecured. However, for larger amounts, lenders usually require collateral to mitigate their risks. This is where commercial mortgages come into play. For commercial properties, the legal and administrative costs associated with securing collateral make it economically unfeasible to borrow less than $100,000. Hence, commercial mortgages become the norm when venturing into the commercial property domain.
The Security Game: Collateral and More
When obtaining a commercial mortgage, the property you intend to purchase becomes the primary security for the loan. In most cases, lenders offer loans up to 65% of the property’s value, known as the Loan-to-Value Ratio (LVR). To secure the remaining purchase price, a cash deposit is typically required. However, in situations where cash is scarce, other assets, such as additional properties, can be used as supplementary security, as long as both parties mutually agree upon it.
Timeframes and Flexibility: Tailoring the Loan to Your Needs
Commercial mortgages come with various term lengths, ranging from 3 to 25 years. But what if you need financing for a shorter period? Fear not! Shorter-term finance options, such as bridging or property development loans, are also available, with durations spanning from a few weeks to 24 months. The flexibility of these options allows you to choose what best aligns with your business objectives.
The Interest Factor: Rates and Fixed-Rate Options
When it comes to interest rates for commercial mortgages, lenders typically quote rates as X% over base or LIBOR. But that’s not all. For borrowers seeking amounts under $1,000,000, fixed-rate mortgages may prove advantageous. Fixed rates offer stability and predictability, shielding borrowers from market fluctuations.
The Nitty-Gritty: Assessing Risks and Rates
Unlike personal loans with pre-set rates, commercial mortgages and business loans are uniquely evaluated for each case. A lending manager carefully scrutinizes the associated risks, considering a wealth of information to determine the specific rate offered. As a general rule, larger loans with lower risks often secure the most favorable rates.
Behind the Scenes: Fees Associated with Commercial Lending
Before diving into a commercial mortgage, it’s crucial to be aware of the various fees involved. These may include:
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Arrangement Fees: Also known as establishment fees, these cover the lender’s processing costs when the loan is completed, even if the offer is not accepted.
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Valuation Fees: Given the variability of commercial properties, expert valuation is necessary during the mortgage process. The payment made to the valuer is added as a fixed cost.
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Legal Fees: These cover the legal aspects of the mortgage process and ensure all agreements are airtight.
Navigating the Mortgage Maze: The Role of Commercial Mortgage Brokers
Feeling a bit overwhelmed with the intricacies of commercial mortgages? You’re not alone. That’s where commercial mortgage brokers come in. Working with a specialist broker can be a game-changer, as they have valuable industry contacts and market knowledge. Their role is to represent you to lending companies and negotiate the best possible deal in terms of duration and costs. Keep in mind that many brokers charge a fee for their services, which can be a fixed percentage of the overall mortgage value or a surcharge at the end of the process.
How can Secured Lending help?
Commercial Mortgages could be the solution you need! At Secured Lending, we offer a range of customisable loan options designed specifically for small businesses. Whether you’re looking to purchase a property hire additional staff, or expand your marketing efforts, we can help you secure the financing you need to achieve your goals. With competitive interest rates and flexible repayment terms, our small business loans are a smart choice for any entrepreneur looking to grow their business. Contact us today to learn more about our lending options and how we can help you take your business to new heights!
If you need quick access to funds, check out our products to see if we can help, or alternatively, contact Secured Lending at 1300 795 175 or email info@securedlending.com.au
Disclaimer: This blog is intended for informational purposes only and does not constitute financial advice. Before making any financial decisions, readers are advised to consult with a qualified financial advisor.
