Commercial Mortgage

Commercial mortgages can be made from a variety of sources to assist with the purchase of freehold or long leasehold premises. Lenders include high street banks, building societies, insurance companies and specialised independent lenders.

Typically lenders will finance up to 70% – 75% of the lower of purchase price or valuation for a new property although some lenders have the ability to fund up to 100% of the valuation in certain exceptional cases.

Commercial mortgages

This type of mortgage can be used for several purposes including:

• buying business premises
• extending existing business premises
• making residential and commercial investments
• developing property.

Typical repayment periods extend from 10 years up to a maximum of 30 years. Some lenders offer commercial mortgages with very short repayment periods – as low as 2 years. Some give you interest-only payments for the first 2 years and some allow you to make deferrals on up to 2 payments per year.

Whatever the plan, commercial mortgages do offer some important advantages over rental of property or land. However, before you take this big step consider carefully the advantages and disadvantages of these loans.

Advantages of commercial mortgages:

• you can keep ownership of your business and your business premises. Other investment options might involve you giving up some of your business ownership
• you can make substantial capital gain. This can be a great way of realising capital growth over a long period
• commercial mortgages are not subject to rental fluctuations of residential properties giving you a more stable business planning environment
• with typically lower interest rates than other unsecured loans/overdrafts, they offer lower monthly costs. Plus they can be fixed which can help you more accurately manage and forecast your finance
• tax deductible interest payments. Commercial mortgage interest payments are tax deductible. This can contribute to reducing your business’ annual tax overheads
• improved cash flow management. Commercial mortgage payment plans normally extend for a number of years letting a business focus on profit and loss and cash flow matters and
• providing the lender agrees, you can sub-let some of your business premises.

Disadvantages of commercial mortgages:

• you need a decent sized deposit. This represents money which could be used in other business operations
• it can be harder to move your business if you own the premises. With property rental, you can often negotiate ending your rent agreement or find another business to take up your tenancy
• if you have a variable rate mortgage, you can leave yourself vulnerable to interest rate increases
• you’re responsible for your property including maintenance, insurance and security
• if you lose value on the property, this will reduce your capital.