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What Is Business Mortgage Financing?

Christine Hudson
Christine Hudson

Businesses with any type of physical location such as a store, warehouse or office need to pay for the space and land it is on. In many cases, these payments are in the form of business rent or lease payments. A growing number, however, are being paid for through business mortgage financing. Just as with residential mortgages, these business mortgages can be used to build a location or buy one already built. Terms and interest rates may be wildly different from one mortgage type to another.

Anyone who is considering starting a small to mid-size business with a physical location will want to consider the option of business mortgage financing. It is typically not a difficult process, as nearly all major lending institutions offer some kind of small business financing. The difficulty lies in matching up the business needs to an available program the institution offers. Even some businesses which are operated out of a home may need to consider a business mortgage.

Businessman giving a thumbs-up
Businessman giving a thumbs-up

One very important factor to consider is how the finance company will qualify the potential borrower. Business loans are different from traditional mortgage loans because one must either show profitability or provide a sound business plan if involved in a brand new business. Putting together a plan and presenting it to the bank can be a difficult process for the new start-up, especially if one is trying a new niche with no proven track record.

This is why many new start-ups look for money through the use of angel investors or venture capitalists. Banks have extremely tight lending restrictions when it comes to the brand new entrepreneur. Not only is the business plan needed, but also one's personal track record must be intact, including past mortgage payment history and current median credit score.

The entire business mortgage financing process does not have to be complicated. Individuals can simply match up the business needs with the type of money and at what rate it is being offered. If it is an established venture and merely needs money for new equipment or overhead costs, the owner must be prepared to provide a sound profit and loss statement for the last two years. A brand new venture must show the lender how and when it will become profitable. Understanding but a few of the requirements that will be laid upon the loan will help people find the correct business mortgage financing.

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