Up and coming businesses in any industry may be better off buying property to host their operations rather than leasing it.
Unless you have a lot of capital to invest upfront, you will need a commercial mortgage to cover the costs of procuring suitable premises.
The FHA Loan Calculator is a great resource to help you determine your estimated monthly mortgage payments.
As you might expect, there are certain requirements you need to meet before lenders will grant you this type of loan, so here is a look at the boxes you will need to tick to qualify for a commercial mortgage.
Before you research your mortgage rates and start to weigh up the various packages which are available, you need to be able to demonstrate to prospective lenders that you can actually repay the loan in question.
If your organization is profitable, or if you have evidence which proves you are already journeying towards making a profit in the near future, then this will be straightforward.
Another good measure of this is your debt-service coverage ratio, otherwise known as DSCR. Put simply, this shows the extent to which your startup’s income is capable of accommodating any loan repayments you will have to make if you get a commercial mortgage.
As you might expect, it is trickier to secure a loan at this point if your business is completely new and has no track record of profitability. In this case, leasing for two or three years before you buy will dramatically improve your chances of achieving commercial mortgage eligibility.
Providing tax documentation
As with a standard mortgage, your startup’s tax records will be required by lenders to back up any claims you make about your profits, cash flow and current debts.
Bear in mind that most mortgage providers will not only need you to provide returns filed by the business specifically, but also by any of the owners who have at least a 20 per cent share of the company at the point that the application is made.
This means that you need to keep your startup’s books ship-shape, and also consider how your own income and tax affairs will reflect on any commercial mortgage application if you are a major stakeholder.
Working with a certified accountant will clearly make things simpler in this case, so while you can apply for a commercial mortgage yourself, unless you are a financial whiz kid it is better to get assistance in this regard.
Checking your credit history
Another key factor that will determine whether or not you are eligible for a commercial mortgage is your credit history. This applies both to your company as a whole and to you as an owner, if indeed this is a position you hold.
If you have previously failed to keep up with loan repayments, or your organization has not been successful in securing loans in the past, it will be harder to get approved this time around.
Conversely if you take steps to boost your credit score so that it can withstand the scrutiny of lenders going forward, things will be much easier.
The good news is that in most cases, lenders will clearly outline the criteria which they need customers to meet if they want to get a mortgage. This applies to commercial loans as well as to personal ones, so you might already have experience in this area.
Whatever you do, make sure to compare the different lenders and their commercial mortgage products carefully. Even if you might be eligible for some packages, this could be a problem if the terms and conditions of repayment are not favorable.
Also Read: 3 Tips To Grow Your Early-Stage SaaS Startup