A commercial mortgage is a loan taken on a property which is not your residence. Usually a borrower requires depositing big amount of funds, in order to get the mortgage. As the mortgages are risky to the lender, they usually try to keep the deposit amount as high as possible. As high the deposit is, as low the risk will be.
What You Property Type IsThe deposit is directly related to the level of risk. Different industries and businesses have their own kind of risks. Hence, the lender will see what is the purpose of taking the property and that will affect the deposit amount. Usually, if you are trying to get a loan for office buildings or retail shops, the lender would require at least an amount which is 20 percent of the value of your property. If you are planning to buy a property for a medical office, surprisingly, you may have to pay very much less amount which can be approximately 5 percent of the value of the property.
Hence without worrying, one should first check about the deposit requirement as per the business they are planning to get the property for as not necessarily for every commercial property you have to pay huge amount.
Private Lender Instead Of BanksBanks do not give the loan to the people who really need it. Not in every case but this is true to some extent. Bank can’t afford to take more risks as they have certain protocols to follow. They always keep the deposit amount high to save themselves from the risk factor. The private lenders do not have any conditions, they don’t have to follow the protocols like banks and they also can take more risks. Hence if you present yourself well, you may get succeed in getting big amount of loans from people who believe in you and in your business.
How Old Is Your BusinessIf you have been doing the business from sometime and have maintained yourself to survive in the industry, it means that you have at least the potential to pay the loan back. If you are new to the industry, you may not be able to get the loan from any private lenders either. Hence if one can manage to be in the business for some time, his ability to obtain a loan with less deposit will increase. During this period, the person can depend on the renting to manage the expenses. So, to grow your business, if you are taking the loan, it’s very much easier than taking it for a new business.
SecuritiesYou can also depend upon the assets you have in order to deposit lesser amount required without securities. Though among the loan providers, most of them accept only the property which is being purchased as security, but there are lenders who are comparatively flexible also. You can keep other assets you posses also as security, as they just want to reduce their risk of losing the money. You can also use your equity in other properties, in order to lessen the deposit amount to some extent.
Believe and Trust FactorWhen it comes to the private lenders, believe and trust factor works a lot. If you start taking money from the private lender on regular basis and pay them the required instalments regularly they will not hesitate to keep giving you money continuously as they know you are able to pay it back.
How Much Amount Can be Borrowed?Now after going through the ideas to reduce the deposit amount to the least, let’s have a look how much amount can be borrowed in different cases:
If you use a guarantor who can secure your loan, you can borrow 100 percent of the property value.
If the required Loan amount is up to $1,000,000, almost 80 percent of the property value can be borrowed.
If the required loan amount is up to $2,000,000, 75 percent of the property value can be borrowed. In case of loan amount being up to $5,000,000, 70 percent of the property value can be borrowed.
If the required loan amount is between $5,000,000 and $50,000,000, it will depend on the particular case.
Few other points affecting the loan amount:If, the borrower uses a residential property as security, he may obtain 100 percent of the property value.
List of properties which can be kept as security for Commercial properties:
Standard Commercial PropertiesProperties which re considered to be the best type of securities for the commercial property are: offices, factories, warehouses, showrooms, storage units, retail space, shop fronts, residential properties.
Special Commercial PropertiesThese types of properties are difficult to value and also difficult to sell hence these are more risky to the lender. Few examples of special commercial properties are: accommodations backpacker, hotel, motel, bed and breakfast, caravan parks),old care centres, car yards, any rural properties or farms, preschools, child care, function centres, reception centres, petrol stations, land subdivisions, commercial property developments, , pubs, hotels, restaurants, vineyards, landfills, garbage dumps, waste management facility, shopping villages and centres.
Super markets, private schools and recreation centres are considered as specialized properties but many lenders also consider them as non-specialized.
Specialized properties will have to go through a detailed valuation and risk management process from the bank.