Small Business Mortgages

Setting up a mortgage for your small business

Business mortgage financing is often a necessary part of a small business start-up, as few entrepreneurs begin with the money they need to purchase a brick-and-mortar business site. A mortgage for a business is essentially a loan that is used to purchase a commercial property from a bank or institution, and the features of specific mortgages can vary greatly. However, all small business mortgages will require you to use your commercial premises as collateral for the loan.

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Types of Small Business Mortgage Loans

Although business and residential mortgages share some common elements, there are aspects that differentiate small business mortgage loans from personal mortgages. To begin, a lender will consider how the property will be used and what kind of financial returns should be expected. The size of the property, the perceived risk to the lender and the market conditions will also be important issues to consider when structuring the mortgage deal.

The majority of business mortgage loans will require a monthly payment, but will also demand a "balloon" payment after a given time—a total payoff of the remaining amount of your loan. There are therefore two parts to a business mortgage loan: the "term" refers to the amount of time before the balloon payment is required, and the amortization is the length of the payment schedule. This type of business mortgage will be a shorter-term loan, and the low monthly payments will allow greater access to cash at the beginning of your small business venture.

Business mortgage interest rates and payment will depend on the specific mortgage plan you take on. As in the case of residential mortgages, there are fixed rate and variable rate mortgages for businesses. A fixed rate means that your interest rate will not change during the course of your mortgage term, while a variable rate is subject to the fluctuating market conditions. Additionally, there is an interest-only mortgage that allows you to pay only the interest on the loan for the first few years, which will allow for lower monthly payments while you get your business off the ground.

How to Apply for Business Mortgage Financing

As with other small business loans, your credit will determine the amount and the rate of the mortgage loan that you can obtain. Unlike a residential mortgage loan, your business mortgage financing will be based to some extent on what your business will be worth in the future, in addition to its current value. The right mortgage for your business will match your business aspirations and expectations—you may want to work with a business consultant and a commercial mortgage broker to construct a deal that will be affordable and helpful to your specific needs.

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