Top 5 Commercial Mortgage Mistakes Business Owners Make – And How to Avoid Them
As a commercial mortgage broker, I’ve seen business owners’ trip over the same hurdles time and again when securing financing for their properties. These mistakes can cost thousands—or even derail a deal entirely. Here are the top five missteps, along with practical tips to avoid them.
- Overlooking Total Loan Costs
Many business owners focus solely on the headline interest rate and miss the bigger picture: fees, exit costs, and early repayment penalties. A ‘low rate’ product can end up being more expensive when these extras pile up. How to Avoid It: Always request a full breakdown of costs from your lender. Compare Loan Estimates side-by-side and ask about hidden fees upfront. A good broker has tried and tested most of the lenders in the market and knows where the fees are and can quickly compare and advise on like-for-like loans, so you don’t have to. - Overleveraging the Property
Borrowing too much against a property’s value might seem like a good idea on the initial acquisition but it leaves little room for market shifts or unexpected expenses. If property values dip or income drops, you could be underwater fast. How to Avoid It: Stick to a loan-to-value (LTV) ratio that leaves breathing room—typically 65-75%. Stress-test your cash flow projections with your broker to ensure you’re not stretched too thin. - Ignoring Credit Health
A weak business or personal credit score can lower your loan approval odds or land you with high rates. Many business owners mistakenly think their personal credit score does not matter, it does, lenders look at the directors, shareholders, and the company’s credit profile. How to Avoid It: Check your credit reports in advance of applying for a loan. Pay down debts, dispute errors, avoid late payments and build a stronger credit profile. - Misunderstanding Loan Terms
Fixed vs. variable rates, balloon payments, amortization schedules—terms like these trip up even seasoned borrowers. Signing without fully grasping them can lead to nasty surprises down the road. How to Avoid It: Ask your lender or broker to explain every term in plain English. Don’t hesitate to negotiate terms that align with your long-term goals. - Skipping Due Diligence on the Property
A great loan won’t save a bad investment. Owners sometimes rush into financing without vetting the property’s condition, zoning, or income potential, only to face costly setbacks later. How to Avoid It: Invest in a thorough appraisal and property inspection. Research local market trends and tenant demand to confirm the asset’s viability, not just in the current climate but also what might happen in the future to local prices and the wider economy. Always check planning and use licences with the relevant authorities, if it doesn’t have permission for your intended use, you won’t get a mortgage on it.
Avoiding these mistakes can save you time and money. Partnering with an experienced commercial mortgage broker can make all the difference—someone who’ll guide you through the fine print and tailor a loan to your needs. Ready to get started? Reach out for a free consultation, and let’s secure the right financing for your next venture.
07534 186 689 Contact Us – York Lane Finance
