Commercial mortgage for individuals: features, types, conditions

Just a few years ago, a new banking product appeared on the Russian market - a mortgage for commercial real estate. Although for us this phenomenon is quite new, Western companies have long appreciated it. Let's take a closer look at this type of commercial lending, its features, advantages and disadvantages.

Property for business

If you decide to open your own business or expand an existing business, you may need additional space. Of course, if you have the required amount, you can immediately get what you want. If there is no money, the only way to get closer to the goal is a loan. Commercial mortgage is a long-term bank loan for the purchase of non-residential premises for doing business. With the help of such a loan you can buy an office, warehouse, commercial or industrial premises.

Typically, such banking services are needed by young people who are just starting out, And individual entrepreneurs planning to expand their businesses. In addition, citizens who provide themselves with work on their own can take advantage of such a proposal: notaries, lawyers. They need to have an office to receive citizens. Also, the service can be used by citizens who want to profitably invest free cash. Having acquired a commercial real estate object in a mortgage, you can profitably lease it.

Legal issues

Commercial mortgage in the Russian Federation is far from the sphere of state interests. As a result of this, the law does not provide clear explanations of the features of this type of lending. The current law on mortgages (Federal Law No. 102) is designed for housing loans, but in terms of lending to businesses, it contains many gaps. As a result, not all Russian banks venture to work with a business mortgage.

On the other hand, real estate, moreover, for commercial purposes, becomes a guarantee for this type of loan. This fact makes some banks overpower fears. Thus, this lending industry, although slowly, is developing.

Lending terms

Since mortgages secured by commercial real estate for Russian banks are quite new, the conditions for obtaining such a loan in different financial institutions can vary greatly. But, having considered several such proposals, one can derive a list of conditions for the average borrower. It looks like this:

• loan amount - from 1 to 100 million Russian rubles;
• lending currency: rubles, dollars, euros;
• interest rate - from 10 to 15.5% for individuals, up to 20% - for legal entities;
• down payment - at least 20% of the value of the object;
• loan term - from 5 to 10 years;
• compulsory insurance of loss or damage to an object.

In this case, it will be necessary to additionally prove that your business exists for at least six months and is quite successful, makes a profit. As you can see, for a successful entrepreneur, the conditions are quite acceptable. A considerable interest rate can cause questions. But if you take into account that the mortgage term is quite short, it becomes clear that you simply will not have time to overpay a lot.

Room requirements

Mortgages for commercial real estate in Russia are not very common. Banks approach this issue with extreme caution. First of all, it concerns the requirements for a property. There are quite a lot of them:

1. First of all, a room or a separate building should be located in the region where this type of mortgage is provided.
2. Room area - not less than 150 m².
3. The building cannot be mobile, it must relate to capital construction.
4. The room must be suitable for its intended purpose. For example, if a borrower is engaged in agriculture, then the acquired premises may be a warehouse, a barn, a pigsty, and so on. In this case, it will not work to purchase a room for arranging parking.
5. The room must be legally “clean”. Cadastral number, technical documentation and other title documents should be normal.
6. Real estate must be free from claims of third parties.
7. The land on which the object is built (or located) must belong to the borrower on the basis of property rights or long-term leases. In the latter case, the bank will require guarantees that at the end of the lease the land will become the property of the borrower.
8. The cost of the premises must match the market. This fact must be confirmed by an assessment report of not more than six months ago. The assessment should be carried out by an independent expert.
9. The subject of a mortgage must be insured.

As you can see, the list of requirements is quite large. Therefore, banks, diligently developing this area, most often have a list of objects that meet all the requirements and are ready for sale. Under premises from such a list, obtaining a mortgage is not difficult.

Borrower Requirements

But for those who want to take a commercial mortgage, the requirements are much less. The main criteria are:

• the borrower is a resident of the Russian Federation;
• age - from 21 to 70 years (at the end of the mortgage);
• the life of the company (business, individual entrepreneur) is 6 months (12 for seasonal business).

To apply for a mortgage on a commercial property, you will need:

• loan application;
• profile (own for each bank);
• constituent and registration documents for your business;
• documents confirming business activities;
• financial reports.

Of course, the list may be slightly different. The full list will be indicated to you by the manager of the credit institution when registering a mortgage.

Business mortgage for individuals

Commercial mortgage for individuals is a completely new concept for Russian banking institutions. First of all, such a service is provided by large banks:

• Sberbank
• Vneshtorg.

You can also contact other institutions:

• "Absolut Bank".
• Moskommertsbank.
• RosBank.
• Russian Mortgage Bank.
• "VTB 24".
• "UNION AKB".
• "PromTransBank" and others.

Each of them offers its own conditions for receiving money, but the list of documents for all is approximately the same:

• passport, TIN;
• military ID (if any);
• copies of documents on marital status;
• certificate of income and from the tax office;
• documents confirming the existence of accounts, stocks, bonds, and other evidence of solvency;
• business license;
• expert report on the valuation of property, its market value;
• real estate insurance documents;
• title documents for land under the property or lease;
• contract of sale of a property acquired in a mortgage;
• other documents at the request of the bank.

Benefits

Of course, the main advantage offered by commercial mortgages is the acquisition of their own business premises in a short time. It is very important. After all, the presence of your own office, sales area or other premises makes the entrepreneur independent of changes in rental prices and other unpleasant moments. Of course, a mortgage does not exempt from the obligation to pay a rather large amount each month. But it will be payments for personal real estate, and not rent. Quite another matter, isn't it?

Another advantage is that many banks provide a rather long loan term - up to 10 years. Sometimes you can get a business mortgage even without a down payment. True, for this you will need to provide the bank with an additional deposit.

Many banks also practice early repayment without penalties, as well as deferred repayment of principal for up to six months.

disadvantages

Like any other loan, commercial mortgages undoubtedly have disadvantages. The main ones include:

• lack of clear legislative regulation;
• the lack of sufficient practice for many banks, mortgage schemes, clearly established risk limits, and so on;
• the presence of controversial issues when registering a land plot as a pledge in cases where the whole building is acquired;
• clearly overstated volume of required documents;
• the need to conduct and pay for additional procedures: insurance, examination, cost estimation, and so on; All this entails a long processing time and additional costs.

Features of lending to legal entities

Commercial mortgages for legal entities also have their own characteristics. For example, the law contains a direct rule prohibiting the execution of a mortgage before registering a transaction. This is a pretty big risk for a financial institution. It turns out that the bank first gives money to buy, then real estate is acquired, and only then can it act as collateral. Credit institutions have to go for additional tricks. In this case, the money is often placed in a bank cell belonging to this financial institution, or received on a special letter of credit without the possibility of withdrawal.

There is one more difficulty. Commercial real estate is known to have book value. It is usually well below the market price. In this case, the seller arises taxable income. It is also not interesting for the buyer to register the true value of the premises in the contract, because the amount of tax in this case will be much more. But the bank market price is just very important. Otherwise, part of the loan will not be covered by the value of the collateral.

To apply for a mortgage on business real estate, legal entities must prepare:

• profit / loss accounting report;
• analysis of the company's cash turnover for at least 6 months;
• information on receivables and payables;
• bank information on the state of the accounts of the enterprise;
• information about fixed assets;
• information on existing credit transactions, other types of agreements;
• other documents at the discretion of the bank.

Design Schemes

Since commercial mortgages do not have clear legislative regulation, such transactions are rather risky for banks. There are three basic design schemes that help minimize risk.

Option number 1:

• the parties enter into a contract of sale;
• the buyer makes a down payment, and the bank guarantees to pay the rest after the deposit has been drawn up;
• the buyer registers the ownership;
• a deposit is drawn up and the buyer is paid the missing amount.

Option number 2:

• the buyer pays the seller a down payment;
• the premises are pledged to the bank;
• registration of a change of ownership is carried out, a contract of sale is concluded;
• the seller receives the remainder of the amount, despite the fact that registration activities are ongoing.

Option number 3:

• a separate legal entity is registered, the property of which is transferred to the property;
• for credit funds, the buyer acquires ownership of this legal entity;
• after repayment of the loan, the buyer can re-register the ownership of himself.

To fully control the progress of the transaction, the borrower is most often offered a presentation of his interests. Thus, the representative of the bank takes over the coordination of all issues and communication in various services.This allows the borrower not only to save time, but also to reduce risks at all stages of the process.