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Commercial mortgages
Commercial Mortgages

A commercial mortgage is essentially a commercial loan that you take out, using the services of a commercial mortgage lender, to buy property or land for business purposes. Commercial mortgages can also be used in the following ways:

  • to set up a new business

  • to purchase an existing business

  • to develop a business property

  • to use as an investment

  • to purchase land for business development

What are the different types of commercial mortgages available?

Although a commercial loan is a different financial product to a domestic mortgage, it is governed by many of the same rules and regulations. When you approach a commercial mortgage lender, you will be presented with these two main options:

  • Repayment commercial mortgage

  • Interest-only commercial mortgage

If necessary, it may be possible to negotiate for special repayment options with certain commercial mortgage lenders. For instance, certain commercial loans may allow you to organize repayments by paying out a smaller amounts at the start of the mortgage term with a larger lump sum payment due at the end. Some commercial mortgage lenders are also able to offer commercial loans with fixed rates and special discounted deals.

Shop around to get the best commercial mortgage to suit your particular needs.

How do commercial mortgages work?

Many loan providers do not advertise their commercial loans as widely as their domestic loans. It is common practice to use the services of a professional broker to obtain a commercial mortgage. In fact, certain loan providers are only willing to work through brokers. Although you may have to pay additional brokerage fees, it is worth remembering that often, using a broker can help you get the best deal.

Many commercial loans have minimum limits imposed on them, but generally amounts vary according to different commercial mortgage lenders.

A typical term for a commercial mortgage is 15 or 20 years rather than the 25 years term offered by most domestic mortgages. However, it is possible to find commercial mortgage lenders who offer more than 25 years.

Most commercial mortgage lenders require a deposit of at least 20%. There have, however, been cases where the requirement has been as low as 5%. It is vital to check with your chosen commercial mortgage lender—low deposits can sometimes mean higher interest rates.

 What are the benefits of a commercial mortgage?

  • Flexibility: To a certain extent, commercial mortgage providers are willing to negotiate with you to design a specific loan which will better suit your business needs.

  • Tax Advantages: As part of a commercial loan, you are permitted to have your interest payments made with pre-tax income which you can offset against tax.

  • Mortgage Breaks: Some commercial loan providers will allow you to a take special payment holiday where you can waive payments on the borrowed capital for up to two years. Such deals can mean a great deal to newly-launched businesses where cash-flow can be a problem in the early years.

  • No Upper Borrowing Limit: Many commercial mortgage lenders do not impose a limit to the amount you can borrow. This is obviously of great benefit to new businesses which may need additional finance to cover other costs. However, there are usually high lower borrowing limits so you will need to have a significant deposit.

What to consider before taking out a commercial mortgage?

Before taking out a commercial mortgage:

  • Stay away from loans which carry penalties such as early redemption fees.

  • Be aware of your own liability. If you are a sole trader, for example, then you could be held solely responsible for the commercial loan if your business goes bankrupt.

Compare the best mortgages

 
 
 
 
 
 
 
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