Getting a commercial property mortgage
If you feel confident that your business meets the finance requirements, you're ready to start the process of obtaining a commercial property mortgage. It can take a few weeks or several months, depending on the appraisal process and negotiations, but typically takes around 60 days.
Steps to obtaining a commercial property mortgage
- Find property. You need to have a building or land in mind before applying for a commercial property mortgage - otherwise a broker cannot help you. If you're buying a rental property, you'll also need to have tenants lined up to show the property will be cash flow positive.
- Find a lender. Once you understand your financial commitment (see "Borrowing considerations"), you should research several lenders, or have a broker match you with multiple lenders to search out the best commercial mortgage rates and terms (see "Choosing a lender").
- Complete a loan application. The application gets the loan process started. You may or may not pay a fee for this process (see "Pricing").
- Provide documentation. The lender will need detailed financial statements from the previous three years, including business and personal records. This includes operating statements, bank records, tax returns and corporate financials.
- Hire a lawyer. Make sure you procure a lawyer's services when purchasing a commercial property mortgage. A lawyer can help you review the terms and conditions of the mortgage and look for any undisclosed fees. The lawyer will also represent you when you close the loan to make sure everything runs smoothly.
In turn, the potential lender will take the following steps to determine whether to approve your business 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.