Most people are familiar with the process used to gain a residential mortgage for the purposes of purchasing a home, which seemingly never-ending monetary obligation the homeowner must make until that loan is paid in full.  Perhaps you remember your parents, or a relative, celebrating the payment in full of that loan by having a “mortgage burning celebration”.

Procuring a loan for the purpose of purchasing a building, maybe to be used as a family business, or a retail store, can be a rather arduous process.  You must have all your finances and paperwork in order before you even attempt to begin that venture.  Is this a daunting task?  Well, you could make it easier on yourself if you secure the help of an expert who specializes in loans for retail construction.  Such an expert would be instrumental in paving the way for a potential future business owner to achieve a commercial loan with minimal obstacles to that ultimate goal.

What is a commercial mortgage?

A commercial mortgage is a business-related loan, as opposed to a loan procured for the purpose of purchasing a home.  A commercial mortgage may be used for a business venture, or as an investment.  If you’ve waded through the process of obtaining a loan for a home, you still need to deal with a lender (a bank or loan institution), but, in this case, instead of the borrower being the potential homeowner, it is the potential business owner.  This potential business owner is not always an individual – it may be one or more business partners attempting to start a business, or, it might become a family-related business.  Commercial mortgages are not just for buildings, as the funds may be used to develop or purchase land.

Types of commercial mortgages

SBA 504 Loans: “Owner Occupied” commercial mortgage.  You’ve probably heard the commercials about just how easy it is to obtain a SBA loan to fulfill the dream of having your own business.  Since its inception in 1953, the United States Small Business Administration (“SBA”) has delivered millions of loans, loan guarantees, contracts, counseling sessions and other forms of assistance to small businesses.  Most potential business owners feel the most comfortable with the 504 Program which is considered the best way to purchase “owner occupied” commercial real estate with a minimal amount “down”.

  • The SBA fixed rate loan (7A) is a guaranteed loan program if you have at least 10% to put down and are able to work with a 25-year fixed rate. A financial advisor would be in order if this idea is out of your comfort zone, but, again… the SBA 504 loan may be the very best way to achieve 85% to 90% financing, with all, or part, of the financing fixed for a period of 20 to 25 years, especially if you have good credit and are financing a multi-use property.
  • 30-year amortization is a solution that works if you are desirous of financing a “multi-purpose building” in a low-income census tract and is available through the 504 SBA. This program offers a 30-year amortization, a low 7-year fixed rate with a 3-year interest-only period on the front end of the loan.  A multi-purpose building is defined as offices, warehouses, light industrial buildings, retail buildings, manufacturing facilities, medical or dental office buildings or research and development facilities.

Most 504 first mortgage loans are only fixed for a period of time before they are adjusted, i.e. typically 5 years, so they are a very preferable option to  lock in the mortgage costs for the long term, especially when rates are low.

SBA mortgage loans

  • Purchase and acquisition of “owner occupied” commercial property;
  • Refinance purposes;
  • Enhancements such as renovation and remodeling of an existing business property;
  • New construction if a new building is needed, or you are constructing a brand-new facility;
  • Green construction, such as retrofitting or remodeling with an eye to a safer environment; or
  • Purchase of “long-term” machinery or equipment (only if the potential purpose of equipment has a useful life of 10 or more years).

Why not consult with a financial expert today to see if a small business loan is the perfect solution for you?