Financing Commercial Property with Mortgage Loans

Although each lending institution has specific loan-application guidelines, they all evaluate business mortgages on two critical factors: the financial strength and stability of the borrower and the economic feasibility of the project.

You need to consult with a qualified commercial mortgage banker or experienced real estate finance professional before applying for a loan, but there are a few common questions small business owners can ask before they begin the process:

Where does the money come from? The U.S. Small Business Administration (SBA) offers a variety of mortgage programs administered through local and regional commercial banks. These programs finance new and existing properties, furniture and other assets. Additional sources include commercial banks, insurance companies and conduit lenders. Real estate portals such as PikeNet and LoopNet can also help you find financing and capital.

How much cash does it take? The down payment required to purchase property varies with each lender. To receive an SBA-secured loan, you must put down at least 10 percent of the purchase price. Commercial banks, conduits and insurance companies generally require you to put down a minimum of 15 percent.

How is the loan structured? Experts advise business owners to keep the mortgage separate from their primary business. In other words, form a separate business entity to lease the building to the operating company. Be wary of recourse loans: If you default on them, the note holder can seize the property and sue you for repayment.

What do I need? When applying for a mortgage, be prepared to show at least five years of operating statements. The terms and amount of the loan will be tied to the strength and stability of your business. The only way most banks will lend to companies less than five years old is if they can offer a substantial down payment.

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