Commercial Mortgages And Lenders For New York Retailers
COMMERCIAL MORTGAGES AND LENDERS FOR NEW YORK RETAILERS NEW YORK
Commercial lease rates in New York have risen over the years, and retailers have borne the brunt of the increasing figures. Lease rates in The Big Apple start from $40 per square foot and can reach $2,200 in some areas. Businesspeople in the Manhattan area fork out anything from $100 to $1,000 per square foot on average. These numbers can easily eat into your profit. But instead of moving to lower-priced areas that may not have the same foot traffic, here is an alternative: purchase a property with a commercial mortgage!
What is a commercial mortgage?
You probably know how mortgages work and may even have one on your home. Commercial mortgages work the same way, only that they are only applicable to properties used for business activities. Like with a residential mortgage, you borrow money against the said business premises. This money can help you:
· Buy business premises and bid adieu to exorbitant rents. For businesspeople operating in New York, these are huge savings. It pretty much works like a residential mortgage where you eventually get to own the property after paying off the loan.
· Develop an owner-occupied business. It essentially means financing a property and building equity in it with each payment you make towards offsetting the loan. Plus, the business premises will appreciate over time, giving you more working capital.
· Get in on a buy-to-let portfolio that allows you to purchase multiple properties at once using a single mortgage. In addition, you operate one account, making accounting much easier, and only deal with one lender. With one statement and one monthly payment to boot, cracking the math comes easy.
· Rent out the property if the loan agreement does not have strict owner occupancy laws. You can generate extra income for your business this way.
Commercial mortgages are long-term and often last up to 25 or more years. Most lenders finance up to 70% of the property’s value. Once you have paid the deposit, you can focus on running your business and using your working capital (current assets – current liabilities) to pay the mortgage payments.
Examples of commercial properties you can mortgage include:
· Local shopping centers,
· Convenience centers,
· Lifestyle centers,
· Neighborhood centers
· Anchored & unanchored properties, and
· Big box retail properties.
Where can you get a commercial mortgage?
Like with residential mortgages, there are multiple commercial mortgage lenders in the market. Their rates and terms vary, and understanding the checks to which you will be subject is important. Your options include:
These lenders require a lot of documentation which lengthens the application process. But, on the upside, they offer good interest rates and long-term financing options. Plus, you can always get a discount.
Non-bank financing companies also offer loans with less rigidity and faster processing compared to banks. Plus, they have lower closing costs. However, their interest rates are high, and their financing terms are often short (5-10 years).
SBA 504 Loans
These loans feature two lenders: the bank (up to 50% financing) and a development company (up to 40%). You get to pay a deposit of only 10% on average and can enjoy the loan for up to 25 years. However, the funding processes are slow.
SBA 7(a) Loans
These are SBA affiliate loans with reasonably fair interest rates valid for up to 25 years. The downside is the credit score limit and the time spent on the application process. Plus, you must meet the owner-occupancy threshold.
Hard Money Lenders
These private lenders do not evaluate your credit rating and instead process loans based on a property’s value. Their interest rates are, however, quite high, and the repayment terms are short.
How to apply for a commercial mortgage in New York
The requirements vary from one lender to the other. However, you should expect to provide the following:
· Evidence of income: Most lenders want to assess how your business has been doing. Bank statements and trading figures for the last 3 years often suffice. If you are yet to start trading, the lender may want to see your business plan or loan proposal. It will give them an overview of the business and whether the loan can help the business.
· Proof of address: Not only will you need to present bills or invoices relating to your business address, but you also need to show a lease agreement. An equivalent of these documents also works.
· Documentation on loan use: Depending on your lender, you may have to outline how you will use the money. For example, if the loan is to help you purchase a retail property, you must show this. Likewise, if the lender has restrictions on where you can buy the property, you must show that you will adhere to this.
· Security: Some lenders will ask for collateral which is not often the case. In most cases, they will assess if the proposed retail property acquisition is acceptable security. They do this by having independent appraisers inspect and value the property, enabling them to evaluate its worth. If it meets their mortgage requirements, they calculate a loan to value (LTV) ratio. For example, they could use an LTV of 60%, which means they finance 60% of the mortgage, and you bring in the 40%.
· Your business acceptability: Most businesses are eligible for a commercial loan. However, you may want to check with your lender if you meet their entity criteria. Acceptable business structures include partnerships, sole proprietorships, limited liability companies, and limited liability partnerships.
· The requested loan amount: You may be surprised by this, but lenders also have minimum loan amounts. The lender will want to assess if they will get an acceptable return on income based on the requested loan amount. Additionally, they factor in the loan repayment time, which often lies between 5 and 30 years.
· Location: You will want to work with a lender who accepts applications from businesspeople in New York. Lenders often have geographical limits and may not be open to granting you a loan if you are outside their scope.
· Credit history: Here is a tough one. Most lenders will review your credit scores over the years. The scores feature character, collateral, capacity, capital, and conditions. Having a bad score does not mean you cannot get a loan. It only means your terms may not be as favorable as those offered to someone with a good score.
Most commercial mortgage applications feature the following steps:
· Completing and submitting an asset and liability form about your business.
· Filling in a commercial mortgage application form in which you outline the purpose of the loan.
· Providing details about your business (bank statements and trading figures over the last 3 years, business plans, lease agreements, and proof of address).
· Awaiting the appraisal and due diligence processes conducted by the lender.
· Receiving a mortgage from the lender.
Please note that your lender may have different processes, and the application may require more steps. Arm yourself with your business documents (trading figures and bank statements) in the meantime as you figure out what lies ahead.
The best commercial mortgage brokers in New York
Working with a specialist broker makes it easier to find the best lender for your business. Plus, it eases the application process and takes a load of work off your shoulders. Some of the top mortgage brokers in New York include:
3. R3 Funding
Did you know? The interest on your commercial mortgage is tax-deductible! That is one more reason to start vetting lenders now as you work towards expanding your business. All the best!