A business mortgage is also known as a commercial mortgage. It is a mortgage loan taken out on a commercial property like an office building, warehouse, or shopping center.
More On Business Mortgage
A business mortgage is also known as a commercial mortgage. It is a mortgage loan taken out on a commercial property like an office building, warehouse, or shopping center. A business mortgage is typically used to acquire or redevelop a commercial property.
Like a residential mortgage, a business mortgage uses the mortgaged property itself as loan collateral. The two types of mortgages differ, however, in that a business mortgage generally has a much shorter term (between 5 and 20 years). Though both loans usually involve consistent monthly payments, a business loan has large balloon payment at the end representing amortization. Many business owners choose to refinance or sell the property before this final payment is due.
Commercial mortgages demand a much lower loan-to-value ratio than residential mortgages do. Typically, home mortgages are offered at a loan-to-value ratio of 80 to 90 percent, meaning that a buyer puts down 10 to 20 percent of the value of the property. However, commercial mortgages are commonly offered at a loan-to-value ratio of between 55 and 70 percent. Since commercial properties cost much more money than residential homes (for the most part), commercial buyers must come to the table with a lot of cash on hand. Additional, commercial lenders expect to see proof of revenue and profits as well as a thorough business plan.