Mortgages generally require borrowers to make large deposits. The industry standard for your deposits is 20 to 40 percent of the property’s value. Why? Because banks and lenders consider them risky. They increase the size of the deposit to reduce that risk.
As surprising as it may sound, a higher deposit is not necessarily undesirable for businesses either. It comes with its own set of benefits. It lowers the interest rate and repayments, saving a significant amount of money for businesses over the course of the repayment schedule. However, for cash-strapped businesses or high-growth businesses whose money is best spent driving that growth, a large deposit can be a big deal.
But there is no escape. Businesses must pay a deposit to get one.
That said, businesses can take advantage of a commercial mortgage by paying a deposit that is fairly close to zero. That is how.
1. Type of commercial property
All companies and their industry have a certain degree of risk involved. This risk changes from one industry to another. Naturally, some commercial properties are considered riskier than others. For example, a business that obtains one for a medical office may end up paying less than 5 percent of the property’s value as a deposit. On the other hand, most other properties, such as retail stores, office buildings, and the like, require businesses to pay at least 20 percent of the property’s value as a deposit.
Therefore, refer to the existing industry standard for depositing a commercial mortgage on your property.
2. The type of lender
Banks have the least appetite for risk. Hence, they make companies pay the highest deposits. On the other hand, private lenders tend to have a greater appetite for risk. So if you approach private real estate lenders, you will likely end up paying a significantly lower deposit than you would have paid the bank.
3. Business history
The requirements for commercial mortgages change from one lender to another. However, lenders often trust companies that have been in the market the longest. New businesses may be required to pay a deposit of up to 50% of the value. So if a company wants to take out a mortgage paying a low deposit, it should probably spend a couple of years with the company first. In the meantime, renting may be the answer to your immediate needs.
4. Security requirements
This is one of the most effective strategies for reducing your loan deposit. Most lenders keep the property you are buying as the only security. However, some lenders are flexible about this. They can accept your equity in other properties or your other assets as collateral for the mortgage and reduce the deposit to a fraction of its previous value.