Commercial Mortgage

Get a business mortgage for commercial property

A commercial mortgage (also called a "business mortgage") is theoretically very similar to a regular home mortgage: the buyer puts up a percentage of the property's value as a down payment, a bank or financial institution finances the balance, and the buyer then pays the lender that money plus interest over the life of the mortgage. When the business mortgage is paid off, the buyer then owns the property free and clear.

However, commercial mortgages differ from home mortgage financing in several key ways. It is imperative that you understand the risks and responsibilities you take on when you get a business mortgage so you don't risk the financial health of your business or its investors when you purchase a piece of property.

Unique Characteristics of Business Mortgages

As with regular home mortgages, you can get fixed rates or variable rates. Commercial mortgage rates may differ from those offered to individuals purchasing homes as their primary residences, though. Interest rate policies are set internally by each individual financing institution, and you will have to check with specific lenders to see if there are any rate differences.

There is a unique type of commercial mortgage known as a buy-to-lease mortgage. With this type of arrangement, the bank is financing your purchase of a property with the understanding that you are not going to use it for your own business, but rather lease it out to other businesses.

A commercial mortgage broker or bank takes on more risk than a lender dealing with an average homeowner. Because the values of commercial properties are higher, there is a greater risk of default if you are unable to meet your obligations for any reason.

When you approach a commercial mortgage lender, expect them to query you in detail about your business finances. You should also expect to put up a minimum of 25 percent of the value of the property on your own; with standard home mortgages, you can put down as little as 10 percent, but this is not standard practice when it comes to a commercial mortgage loan. Banks want less risk, and higher down payments are a means of moderating that risk.