The Five Essential Points to Know About Commercial Mortgages
So why should I take out a commercial mortgage? There are several key reasons why you should consider taking out a commercial mortgage in order to purchase your own business premises. Firstly, the most obvious reason is that you would own the asset whether it is a factory, warehouse or office which means you will benefit from any appreciation in its value. When you eventually decide to sell the property, you may have enjoyed a capital gain.
In addition, financing premises with a commercial mortgage fixes your business costs. Unlike rents, which can be volatile and change regularly, a commercial mortgage gives you a repayment schedule that sets out what you have to pay every month. And, a business loan may actually be cheaper than rent. A commercial mortgage is therefore more stable and will help you to make long term plans.
Finally, the ownership of property through a commercial mortgage allows you to sublet part of your premises. If you have bought a property that is too big for your business you have the potential to sublet some office or industrial space to another company, allowing you to earn income towards the cost of your commercial mortgage.
What Are The Main Advantages Of A Commercial Mortgage?
As well as the ability to realise a capital gain and to sublet your premises there are several other main advantages of a commercial mortgage. Firstly, any payments you make to your commercial mortgage are usually tax deductible. This means that the payments you make can be deducted from your business profits as an allowable tax expense.
Secondly, taking out a commercial mortgage allows you to maintain control over your company. Rather than selling a stake in your business in return for a capital injection, borrowing through a commercial mortgage allows you to obtain the cash you need without relinquishing a share of your company.
Commercial mortgages are also more stable, allowing you to plan more accurately for the long term without the possibility of dramatic rent rises.
Who Is Responsible For The Commercial Mortgage Payments?
The responsibility for the payments to your commercial mortgage depends on how your company is structured. If you are a sole trader, you will bear complete responsibility and liability for the commercial mortgage. If, however, you are a partnership, each partner involved will be jointly and individually responsible.
If you have a company structure, it is most likely that the directors of your company will be liable if the commercial mortgage is not repaid. Directors guarantees assurances that the individual directors will take personal responsibility for the loan are normally required.
How Much Can I Borrow and Over What Term?
Commercial mortgages are typically available for any period up to 20 years (15 years for older properties). Some lenders will allow you to take the loan on an interest only basis for a short period in the expectation that it will be converted to a capital and interest (repayment) basis within the first couple of years.
Lenders generally view mortgages at lower loan to values as less risky. So, the higher your deposit, the more likely you are to be approved and the lower your likely interest rate. Many commercial lenders will require a deposit of between 20 and 30 per cent although the more you can put down; the more attractive the borrowing terms are likely to be.
About the Author:
Howard writes for Just Commercial Mortgages the UK's No1 site for the latest commercial mortgage rates and commercial property finance news.
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