Running a business is expensive. Everything, from simple improvements to expanding locations, costs an exceptional amount of money by normal standards. The key to modern financing is the commercial mortgage loan, a complex instrument that allows you to borrow against the value of your business.
Most people are familiar with the residential mortgage process and, while similar, commercial mortgages have their own unique quirks that require special attention. Let’s take a look at some things to watch out for:
Time to Process
Getting a business loan can be a lengthy process. Businesses carry more financial risk than a simple residential loan and lenders will be keen to analyze as many details as possible. Expect a lender to require many documents before they issue a commitment letter.
How Much is Enough
When borrowing money it can be tempting to ask for extra funds, as it isn’t unusual for additional expenses to crop up. Gauging how much to borrow is an exercise involving careful balance and forethought. Not borrowing enough can scupper an opportunity, but borrowing too much can leave you with excess interest payments that you could have avoided. Carefully weigh your needs before committing to an amount.
Balloons Aren’t Always Fun
Many loans contain what is known as a ‘balloon payment’, a larger-than-normal payment that is due somewhere during the life of the loan. With careful planning these can be manageable, but situations can arise that leave you temporarily strapped for cash. Plan carefully if you are considering a loan with a balloon payment and don’t just assume you will have the funds available.
Covenants and Conditions
Commercial loans often have additional stipulations included in the contract, referred to as covenants and conditions. These addendums generally require the borrower to provide information to the lender on a regular basis. This information may be as simple as an income statement or it could be as complex as detailed accounting records. Failure to provide this documentation can result in default of your loan, so pay careful attention to what a lender requires and negotiate that ahead of time.
In addition to upfront costs and charges, lenders often charge a variety of additional fees for the handling and processing of the loan. Legal fees, surveys, application fees, appraisals and more can all be part of a loan, even if it isn’t ultimately approved. Make sure you fully understand the charges involved before pursuing a loan.
Shop Commercial Mortgage is a lender that specializes in commercial loans. We require no upfront fees, you simply pay for the appraisal and commercial insurance. We pride ourselves on committing to loans in as little as 72 hours and can often fully finance within a week. If you are interested in learning more about our services, or simply more about what a commercial loan can do for you, we encourage you to contact us at 813-368-9919. We look forward to serving you!