So you are a business person or owner looking for a commercial mortgage to buy your business premises. Naturally, you turn to your bank. After all, you’ve been with them for years and they’ve always been happy to chat before. But nowadays, it’s not unusual to be told by your bank over the phone that a business mortgage isn’t possible, or the chance of getting one is very low. The good news is, there’s now an alternative.

Banks are providing fewer and fewer commercial mortgages

Why are banks currently so reluctant to cooperate with business loans? For some businesses, especially start-ups, it’s because they haven’t had time or the right conditions to prove their business is viable and able to pay the monthly installments – let alone the entire mortgage. Even more problematic, many will incur a loss or show little profit in their initial phase. 

Yet some successful start-ups can show very promising figures and prognoses within the first 12 months. But most banks, no matter how well you are doing or how promising the outlook, are inexorable, immovable and disinterested. If you cannot show at least three financial years’ figures, don’t bother coming to the table. Even entrepreneurs with robust, healthy businesses are often unable to obtain a loan. It’s extremely frustrating and can put your business plan back by years.

Business loans rules tightened

Another problem is the rules regarding a business loan have changed – and not to the advantage of the borrower. Borrowers are now faced with considerably higher (own) capital requirements than in the past. Plus interest rates are currently at a historical low. Even though this can be an incentive for a business person to buy a property, unfortunately the opposite applies to the bank. Their view is ‘small returns with an element of risk’ as there is always an element of risk associated with providing a business mortgage.

The application procedure for real estate financing has also become more complex. Whereas applications were previously assessed locally, nowadays the banks involvement extends from local to national headquarters and often external agencies too. This costs time and money and if there is only a small interest income, the banks simply can’t be bothered with requests less than a million dollars.

Getting a loan without a bank

The good news is there’s movement in the market. More and more business people/borrowers are discovering alternative methods of finance. It’s a fast growing sector as more companies start to link private investors to business people/borrowers.

In fact there’s now a new business mortgage market where business people/borrowers can take out loans without any intervention or involvement of a bank.

The interest rates of a commercial loan are usually slightly higher than the interest you would normally pay at a bank. But this isn’t necessarily a huge issue for many business people/borrowers, because they see it as an opportunity cost. It can mean the difference between realizing their business plans or not. Plus, they can enjoy the flexibility this new form of commercial finance offers – in particular, the option of repaying early without penalty.

Real estate – always a solid investment

The value of real estate has remained very stable over the years. Of course there are fluctuations in the real estate market, but ‘bricks and mortar’ never go bankrupt! Many business people/borrowers are not afraid of economic conditions anyway. They intimately know the business they are starting and the purchase of real estate is more often than not a very good investment.

Those ‘bricks and mortar’ also provide the certainty and security that appeals to investors willing to give business people/borrowers a loan that is secured by first mortgage.

‘Peer-to-peer’ mortgages – a win/win for borrowers and investors

A new business mortgage market has emerged in a relatively short time that appeals to two parties. The borrower can take out a commercial loan without the intervention of a bank to finance their business premises. The investor can safely invest his money by providing a business mortgage to the borrower, with solid real estate as collateral. 

In short, ‘peer-to-peer’ mortgages can offer a safe and attractive alternative that enables business people/borrowers to focus on what they do best, doing business. Without the limitations of dealing with the bank!