Home Features Mastermind Videos About Advertise Blog Network Contact
   

Have A Suggestion?
Toronto Salsa Classes / Toronto Salsa Lessons Email us your ideas on how to make our website more valuable! Thank you Sharon from Toronto Salsa Lessons / Classes for your suggestions to make the newsletter look like the website and profile younger entrepreneurs like Jennifer Lopez and Sean Combs!
Have A Suggestion?

Featured Ebook


ebook Famous Entrepreneurs - Modern Empire Builders


Featured Ebook

More Evan Carmichael
More popular articles
Have A Suggestion?

Sales Lessons From Starbucks And Dell

The Differences between Residential and Commercial Mortgages



The Differences between Residential and Commercial Mortgages
   

There are several important differences between commercial finance and the more mainstream finance that most people are used to.

When an individual contacts their bank or mortgage lender for a loan there is an automated system which evaluates the applicants income, financial commitments and general status. This evaluation is then measured against a set of known predictors which gives the lender an overview of how likely they are to get their money back. This automated process is widely known as “credit scoring” which is different from “credit checking”.

When a business approaches a commercial lender for a commercial loan there is a different set of variables to consider. In the case of a commercial mortgage the commercial lender will obviously need a full background of the business they are lending money to. These background checks will include the people who control the business. Whether you are a director of a limited company or a sole trader you should be prepared to answer questions about your personal circumstances when applying for a commercial loan. Only very strong commercial propositions will avoid the need for personal guarantees.

Drawing parallels between a residential mortgage and a commercial mortgage, you could think about a company’s audited accounts in the same way as an individual’s payslips or P60. A commercial lender will look for evidence that the stated income (profit) is sufficient to cover the loan. A set of audited accounts will give the lender details about the business income, financial commitments and general status. The net profit for a company is then used to evaluate the affordability in the same way that the “take home” pay for an individual is used.

How closely the lender will look at the accounts will depend on the Loan to Value (LTV), the amount of money being borrowed, and general viability of the business. In the current commercial mortgage market there is the option to “self-cert” a business income and thus avoid the need to have accounts examined. But self-cert does of course carry its own ‘price’. Very often the interest rate is higher where supported evidence in the form of audited accounts cannot be provided.

Just like a residential mortgage, a commercial lender will insist on independent verification of the value and condition of the property. This verification is usually carried out by a qualified surveyor who is chosen from a panel of recognised companies. Not all residential surveyors are able to carry out commercial valuations. Depending on the type of business a specialist report may also be required.

So in conclusion, the question most often asked is “Why is a commercial mortgage so much more expensive that a residential one?” Well, in simple terms, the cost of a loan is usually dictated by the perceived risk to the lender, and in reality far more businesses end up in bankruptcy and repossessions than individuals.

To learn more about this author, visit Chris Clarke's Website.

Like this article? Share it with your friends


Related Articles Related Articles
Employing A UK Commercial Mortgage Broker
  In an ever evolving market using a commercial mortgage broker can help small businesses make massive savings when purchasing or re-mortgaging commercial property. Find out more about how using a commercial mortgage...
Buy to Let Commercial Mortgages
  Buy to Let Commercial Mortgages are becoming more popular as the commercial property market heats up. With more lenders entering the market we take a look at the different types of commercial investment finance ava...
The Differences between Residential and Commercial Mortgages
  Ever wondered why a commercial mortgage is more expensive that a residential one? Discover what the banks are looking for when considering commercial mortgage proposals, and how to avoid paying too much.
Need A Maid?
  Need A Maid? was formerly known as Blue Bird Cleaning Services and was founded in 1979. The owner of the company, Ginger Howard, acquired the company in 1988.
Zoning Overview
  Zoning ordinances and regulations are laws that define and restrict how you can use your property. Cities, counties, townships, and other local governments adopt zoning plans in order to set development standards to...

Related Forum Posts Related Forum Posts
IMHO - As A Property Owner IMHO - As A Property Owner
Justin Timberlake Commercial Justin Timberlake Commercial
Risking home Risking home
Determine Your Target Determine Your Target
Tie the equity up! Tie the equity up!
SEEKING PRIVATE CAPITAL for a new "patented" fence SEEKING PRIVATE CAPITAL for a new "patented" fence
Hobby vs commercial websites Hobby vs commercial websites
Freedom - I Think! Freedom - I Think!

 
About the Author


Chris Clarke
(Visit Chris's Website)
Chris is a qualified commercial finance broker, helping UK business obtain commercial mortgages, property development finance and bridging loans.
Have A Suggestion?

View Author's Video
Become An Author

Free Downloads


Chris Clarke's

Complete
List Of
Personal-Finance
Articles


First Name
Last Name
Email
 
If you enjoyed this article, get Chris Clarke's Complete List of Personal-Finance Articles For FREE!
Become An Author