Commercial Mortgages

A commercial mortgage is a loan made on real estate, other than a residential property. Typically it is a mortgage that is used to buy commercial property or commercial building. Interest rates are normally higher than for residential property due to the risk involved (IE the premises being used to conduct business).

Why would someone take out a commercial mortgage rather than rent?

There are many good reasons for purchasing commercial premises. From starting a new business or buying an existing business where the property is directly linked to the business, for example a takeaway, a retail shop or a hotel or pub. You may find that your existing business is going through an extended period of growth and as part of this you need bigger premises to expand. In most cases if you decide to buy premises for your business or commercial venture you'll probably need to take out a commercial mortgage.

Owning a property gives your business stability. Buying commercial premises can be a good investment as the property itself can become a significant asset. However, it is one of the biggest risks you will take when owning a business. Therefore before you commit it is important to think carefully about this major step and look at the advantages and disadvantages of making such a purchase.

What are the advantages of commercial mortgages?

Advantages of investing in commercial property include;

• The mortgage repayment is likely to be very similar to a rental payment on the same property, with the outcome that eventually you will own it.

• Once you agree the mortgage you aren't exposed to any unexpected increases that can happen when you rent.

• Although you will probably require permission from your lender, you may be able to sub-let any free space, helping pay towards the mortgage itself.
  

• Any gain in value of the property itself will increase your capital.

• Interest payments on a commercial mortgage are tax-deductible. Check with your accountant to find out how this applies
  

Disadvantages include;

• If you have a variable rate mortgage, you are exposed to increases in interest rates.

• Owning a property means you are responsible for all maintenance, insurance, decoration, security and fixtures and fittings.

• Any loss on the value of the property will decrease your capital.

• If you rent, you may be able to negotiate to end your rental agreement or find another company to take over your tenancy. If you own the premises it may be harder to relocate your business.

• You will need to come up with a substantial deposit to obtain a commercial mortgage.

Although it is natural to secure premises at some point in a businesses life, please take time to weigh up these pros and cons of buying business premises. Once you've decided the time is right, talk to our commercial consultants who can then locate the right mortgage for you.

Contact us now on 01670 840840 for confidential advice on applying for a commercial mortgage today. You've got nothing to lose.