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Using the Equity in Your Mississauga Business
A commercial mortgage could help you to invest in a current business, start a new venture or allow you expand your current business. You could also use the equity in your business to apply for a commercial mortgage for the consolidation of high-interest business debts.
A commercial mortgage is one taken out against a business property. As with the residential mortgage the property will serve as collateral for the loan. The business that takes the mortgage could be a partnership, incorporated or a limited company.
There are several different types of commercial mortgages available. Each will have different terms and conditions. The ratio of Loan to Value that you will be allowed to borrow will also differ, from farmland where only 55% of the loan to value ratio will qualify for a mortgage to 85% in multi-family residential units.
It is important to note that interest rates on commercial mortgages are considerably higher than interest on residential mortgages reflecting the higher risk to the lender when dealing with businesses.
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A Long and Complicated Process
If you decide to apply for a commercial mortgage you’ll be well-advised to engage a mortgage broker to assist you with the process as it is long and complicated and can take as much as a year to finalize. The broker can help to shorten the time it takes as he will advise you on the requirements so that you can prepare yourself and ensure that all the documentation is complete and available. Lenders specialise in various types of commercial enterprise so Mississauga mortgage broker will ensure that you are matched with the most suitable mortgage provider.
Terms and conditions in of commercial mortgages differ substantially and it is difficult to make comparisons between offers because of all the criteria involved in the application. Here again, your broker can assist in interpreting the fine print.
Don’t Give Up on Your Dreams
There is no doubt that obtaining a commercial mortgage is a far more time consuming and complicated process than the residential mortgage process, but you should not let this get in the way of your dreams of expansion. Your Mississauga mortgage broker can help you over most of the hurdles.
As with residential mortgages lenders insist on qualifying criteria which are listed below:
- Debt to service ratio – this is the most important qualifying criteria as it is an indication of the ability of the business to service the loan. The lender will also expect the business to make a decent down payment.
- Credit rating – Your personal credit rating will be under scrutiny as will that of the business. Unless both are well-rated you will find it difficult to find a lender that will be prepared to take the risk.
- Profitability – Lenders will expect that a commercial enterprise that has been in business for some time should be profitable. You may be expected to give them your business plan, income statement, balance sheet and projected growth rates.
- Personal experience – your personal experience in running the type of commercial enterprise for which you seek funds will also be examined in the due diligence that precedes the granting of a mortgage.
Although banks and private lenders supply commercial mortgages banks just as they do residential mortgages, there are a couple of major differences.
- A commercial mortgage will only be approved for buildings or land in areas zoned for commercial use.
- The mortgage repayment structure may differ from a residential mortgage.
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