Table Of Contents:
- What would you do with a commercial mortgage?
- Why should you buy instead of rent?
- How to use a commercial mortgage for raising capital
- What are the costs and repayment options for commercial mortgages?
- How to get a commercial mortgage
A commercial mortgage is comparable to a residential mortgage in concept, except that it is used to purchase a property (or raise funds for commercial reasons), rather than for domestic purposes. As with residential mortgages, the lender retains ownership of the property until the debt is fully repaid.
What would you do with a commercial mortgage?
A commercial mortgage can be used to purchase anything from hotels, restaurants and stores, to office buildings, factories, warehouses and farms. If the business and property are inextricably related (such as a hotel or restaurant), consumers may purchase both at the same time. When a property is purchased as a company location, the mortgage is referred to as a commercial “owner-occupier” mortgage.
A commercial mortgage can also be utilized for refinancing. People may choose to release capital from their existing business property in order to expand or develop their premises or facilities, or simply to raise funds for any other commercial purpose.
A commercial mortgage can also be used for other purposes, such as “buy-to-let” mortgages (people buy a property such as residential for investment purposes, then rent it out), or commercial “development” mortgages, in which people buy a property to develop and then sell it for a profit.
Why should you buy instead of rent?
Taking on a commercial mortgage is a significant step for your company and should be carefully studied before investing. But it can ultimately be a fantastic investment. Owning the business premises that you occupy can provide numerous benefits to your company:
- In most cases, the loan proceeds are not considered taxable income. Also, the interest payments are tax-deductible.
- You’ll have a clear repayment plan with terms and rates tailored to your specific circumstances. As such, you’ll be able to manage your financial flow better.
- Mortgage payments may be less expensive than rent.
- Any real estate acquisition is an investment. Your asset’s value could rise dramatically, thereby increasing your capital.
- Subletting allows you to earn money. For example, if you have extra space on your property which you don’t need right now, you could make money by renting it out to another firm until you need it to expand.
How to use a commercial mortgage for raising capital
If you already own commercial property and require cash for your business for any reason, accessing the capital in your property through refinancing or remortgaging are viable options. Consider it a loan that can be utilized for any business purpose, not just expanding or renovating your facilities.
There are numerous advantages to doing so, which include:
- Commercial mortgages are typically easier than business loans, particularly for small enterprises, because the property serves as collateral for the lender.
- Commercial mortgages have an extended repayment term of 15 to 20 years, unlike many business loans with a short repayment duration, depending on the lender and your company’s financial situation.
The loan proceeds are not considered taxable income in most cases, and the interest payments are tax-deductible.