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Small Commercial Mortgage - Your Business Comes to Life with a Small Commercial Mortgage

loan borrower lender collateral

Many businesses do not have the cash flow to sustain their business in hard economic times. It may be just starting out and need go get on a firm financial basis or it may need to reorganize its priorities to stay afloat. A small commercial mortgage can be a lifesaver for a business that basically sound but needs capital to move forward.

Commercial mortgages are secured loans that are especially for businesses. The collateral for the security is usually the borrower’s house or commercial property. Because of this, it is a minimum risk loan for the lender but risky for the borrower. The borrower needs to have confidence that the business will greatly benefit from the cash flow and repayment will not be difficult.

Small commercial mortgages have relatively low interest rates for a business loan but still higher than a residential loan. The repayment period is generally longer with small, affordable amounts. Also, because it is a secured loan, there needs to be valuation of the property to be used for the collateral. This is more complicated than for a residential loan because the borrower is not an individual but a partnership, limited company or incorporated business.

The aim of a small commercial mortgage is to help in the short run. It is mainly for small business upgrades, paying employees, maintaining the premises such as electricity bills or minor repairs. They are also used to purchase the premises or for extension of the premises.

When applying for a small commercial mortgage there is some criteria the business must satisfy. The main thing the lender wants to see is the debt service ratio which is the amount of cash available to make loan repayments. The business should be stable and showing a profit. It should also have a business plan with long-term financial projections. The lender wants to be sure the business has a future that will guarantee repayments on their loan. There is also a balloon payment for the balance of the loan after a length of time agreeable to the lender and borrower.

Another risk for the lender is the inability to proceed against the borrower in case of default on repayments. The liquidation of the collateral is the only security the lender has. They require the borrower to agree to repay in full any principal or accrued interest by other means.

When searching for a small commercial mortgage it is wise to understand the current situation. In their quest for quick profit and higher-than-normal returns banks may offer a loan that is, in the long run, impossible for a business to repay. Also, the asset valuations can decrease and not always increase, so when the borrower defaults, the collateral is not worth the loan. This is not good lending practice and should be avoided by a business that needs help to prosper. The borrower should ascertain if the bank they are approaching for a small commercial mortgage is actually giving these kinds of loans and not simply advertising them.

There are several points businesses need to consider when looking for a small commercial mortgage.
Many banks are turning down loan applications
The property used for collateral has decreased in value
Traditional business financing is not happening as before
Banks are reducing or eliminating business lines of credit

Businesses can take action to ensure that they can get cash flow financing in the future. A business finance expert can help determine if a business is exposed to the problems in commercial banking. This information may not be given by a financial advisor at a bank. If a commercial borrower is aware of the issues involved, and knows the right criteria for a small commercial mortgage, he or she will be able to ensure that their business is able to borrow adequate working capital.

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