What’s the difference between a commercial and a domestic mortgage?
Although both types of mortgage share similarities a commercial mortgage has a variety of other constituents attached to it. For whatever reason you are applying for a mortgage always speak to a professional advisor and instruct a solicitor who is specifically trained in the property arena. It doesn’t matter if you are a partnership, incorporated business or LLC, any commercial entity can apply for this type of finance.
What is a commercial mortgage?
A commercial mortgage is strictly for the purchase of property or land that is for business use only. If you wanted to build a residential property then this would be strictly prohibited. Likewise this would be the same if you wanted to open a shop somewhere that was residential only.
The repayment structure is also different, there are two components.
• The amortization/loan term of the mortgage is used to calculate the monthly payment.
• The balloon payment is when the borrower either pays off the remaining balance of the loan in full, refinances or sells the property.
What does a lender look for?
• The debt service coverage ratio: this is the ratio between available cash to the loan payment required.
• Loan to value ratio: this is the value of the mortgage compared to the value of the property.
• Whether your business is profitable and stable.
• A lender may want to see the overall business plan, financial statements and any other projections that will affect the cash flow of the company.