Borrowing Considerations

The typical commercial real estate mortgage is 15 to 20 years. You can find mortgages as long as 30 years, which will lower your monthly payment. Of course, the longer you take to pay off the mortgage, the more you will pay in interest.

If you are in a strong position to pay off the mortgage within a few years, be aware of early repayment charges (ERC). Lenders may tack on costly additional payments if you pay off the mortgage early. An ERC can be a considerable unexpected expense, so if you discover that your lender has included one in the mortgage fine print, try to negotiate it out.

Key elements of a commercial real estate mortgage can get confusing. Learn how to avoid many of the misconceptions that commercial mortgage shoppers make.

For a Mortgage:

Evaluate your financials. The lender will consider the financial statements you provided, calculate your LTV and DSCR, and decide whether you demonstrate a high probability of being able to repay the loan consistently.

Perform background checks. Lenders will review your business and personal history and credit to make sure your business is stable and can succeed in the new property. They will also appraise the value of the property and search the title history for any liens, verifying that the seller owns 100% of the property.

Conduct environmental inspections. Depending on the potential health and danger risks of property, the lender may need to conduct environment inspections. Gas stations, industrial plants, and other businesses that work with potential harmful substances are subject to these inspections. These businesses are typically harder to fund and require more stringent lending policies.

Approve or deny mortgage. Once all the evaluations are complete, the lender will either approve or reject your application. If they approve the mortgage, they’ll start preparing the mortgage documents. If they reject your application, they provide a list of reasons why, and you can try to fix those issues and reapply.

Underwrite and fund loan. Once the loan is approved, the lender will underwrite the terms and conditions of the commercial property mortgage and arrange funding. Depending on the complexity of your business, this could take a couple of weeks or several months.

Once everything is agreed upon, make sure your lawyer reviews all of the fees and terms listed in the contract to check for inconsistencies. Once you and your lawyer have requested changes and reviewed the final documents, you hand in your down payment at the closing and sign the contracts. The money is typically available within a few days of finalizing the paperwork.