Applying for a commercial mortgage is not as simple as just filling out an application. There are things you will want to keep in mind before you get the process rolling.
You have already done the hard part—or at least you thought you had. You developed your business, started it, and turned it into a successful enterprise. So successful, in fact, that you find yourself contemplating doing something you never imagined when you started—expanding. If people in your city and the surrounding area love your product, folks in another city or state may love it too.
Of course, the old “you never know until you try” adage doesn’t work here. Why not? Well—because it will cost a bundle of money to find out; a bundle the lenders will want back even if you fail.
So you do the smart thing. You conduct some market surveys, do some product testing, and you identify the perfect place for you to open up another office. You’ve identified a location that interests you, you are working with a lender, and have the groundwork laid to buy the perfect site.
Now you need a commercial mortgage. However, before you start negotiating in earnest with a lender, there are a few things you need to consider—like the hidden costs.
Beware The Hidden Costs Of A Commercial Mortgage
As far as the costs of a commercial mortgage go, people are often most concerned about the interest rate. While it is important, it is not unusual or a lender to make it small, so the loan appears to be a great deal. It is a good deal as long as you don’t look too closely at the hidden costs.
Hidden cost could include legal fees, survey charges, an application fee, appraisal fee, any item that will be charged against the loan. These can add up to a significant sum of money; money that the lender will want to be paid up front before you are approved or denied. So if you get turned down, you will have to pay them again when you apply elsewhere.
What Else Should I Know Before I Sign?
Since you are signing over your business as collateral, you want to make sure you know everything you can before you sign the papers. Along with the hidden costs, the following are questions you should ask before taking on a commercial mortgage:
• If the government raises interest rates is mine guaranteed to rise as well?
• Can you get a fixed-rate?
• Any bonus or incentive (i.e. a lower interest rate) for making a number of payments on time?
• Is there a penalty if I refinance or pay off the mortgage early?
Whatever you do, make sure you don’t take on more than you can afford. Be realistic—maybe even pessimistic–with your revenue projections. Don’t put yourself in a situation where you can’t make your payments if you have an off month or two by shooting too high.
It sure would be a shame to lose your original business because your expansion plans did not work out as well or quickly as intended.
Level 4 Funding LLC
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701
About the author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true.
Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.