Purchasing a commercial industrial unit can be a significant step for your business. However, arranging a mortgage for such a property involves distinct considerations compared to residential mortgages. In this blog post, we'll provide you with valuable insights on how to secure financing for a commercial industrial property.
Owner-Occupied Properties:
Banks typically show great interest when business owners seek to buy commercial properties for owner-occupied purposes. To secure financing for such properties, banks will scrutinize the financial performance of your business over the last few years. This assessment, often coupled with lease agreements, helps determine the feasibility of your business operating from the property. Loans for owner-occupied commercial properties typically range from five to ten years, with maximum terms of 15 years, unlike residential properties that can have terms of up to 30 years. Be prepared for higher interest rates in the commercial property sector.
Leveraging Home Equity:
Many business owners use the equity in their homes to fund part of the deposit for a commercial industrial property. This approach allows them to secure more favorable residential rates for a significant portion of the loan while accessing commercial financing for the remainder. By doing so, you can optimize your borrowing costs.
Registered Valuation:
Regardless of the bank you choose, most will require a registered valuation for the commercial property. The property must meet specific criteria, including compliance with the New Building Standard (NBS). In general, a building should have a minimum NBS rating of 67%, which often necessitates a strengthening engineer's report. Banks typically do not lend on uninsured properties, emphasizing the importance of adequate insurance coverage.
Deposit Requirements:
The deposit requirements for commercial industrial properties differ from residential properties. Banks typically require a 40% deposit, with the remaining 60% funded by the bank. This deposit can come from various sources, including cash reserves, home equity, or other assets. Keep in mind that the bank's willingness to lend will depend on factors like your earning capacity and the loan-to-value ratio.
Financing a commercial industrial property is a unique process that involves several key considerations, including business financials, deposit requirements, and property standards. While commercial properties may have shorter loan terms and higher interest rates, leveraging home equity and meeting insurance and building standards can help optimize your financing strategy. It's essential to work with a qualified mortgage adviser who understands the intricacies of commercial property financing to navigate this process effectively. At NZ Mortgages, our team specializes in commercial property financing and can provide tailored guidance to help you secure the financing you need for your business expansion.
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