Why Should I Take Out a Commercial Mortgage?
The benefits of a commercial mortgage are numerous, acquiring your own business premises means the company you run and own will benefit from the increased property price over time and even capital gains whenever you decide to sell the property. So no matter what the property is, factory, warehouse or office it’s at the very minimum worth considering.
Not having to rely on rental contracts that only last for a year to a few years in most cases means it’s easier to predict and calculate long term business costs, as with a commercial mortgage, the payments will remain relatively stable. There will be no large increases in rent to contend with, a commercial mortgage will give you a monthly repayment plan at a set rate, meaning it could be cheaper overall than renting a premise.
As you and your company will be sole owner of this property, and if you have bought big with the intention of expanding at a later date but are not using the space at the moment, sublet that space to open a new profit stream. Even if it’s just one tenant or several, it could cover most or all your commercial mortgage repayments, making it an astute business decision.
What Are The Main Advantages Of A Commercial Mortgage?
You mean besides potential capital gains and income from subletting, then how about tax deductions? Most businesses that pay commercial mortgage can claim tax expense on the payments, meaning tax is reduced on gross annual profits; it doesn’t get much better than leaving the taxman short changed!
Another of the indirect goodies a commercial mortgage delivers is the option to avoid having to sell a stake in your company for capital injection. Using the equity in your commercial mortgage is a self generating way to get the cash you need to expand or pay debt off without chipping away at the control of your company.
As was already mentioned once or twice, commercial mortgages lead a more stable foundation to place your company on, without having to put up with sharp rent increases that could severely damage overheads and profit margins.
Who will Responsibility lie with in the Company for the Commercial Mortgage?
That all depends on how you have structured your business, though it still roughly follows the same set up as residential mortgages. Sole trader will have all liability and responsibility on their shoulders for the commercial mortgages, partners in a company will be responsible as a pair but also individually.
In a company however, all directors in the business become liable for an outstanding commercial mortgage. Individual directors will have to agree to take on the personal responsibility for the commercial mortgage by signing a director’s guarantee, these will be essential.
How Much and Over What Term Can I Borrow?
Commercial mortgages have a shorter term than residential, having a maximum term of 20 years; this could be reduced to 15 years if the building is quite old. Interest only mortgages are available, but they will only generally be interest only for the first few years of the mortgage and then revert to a capital mortgage, to help the business get up and running.
Lenders will be more willing to approve a commercial mortgage with a low LTV rate, so the more you can bring to the table as a deposit, the better your chances of being accepted. Minimum deposits are much higher for commercial mortgages than residential mortgages, the threshold beginning at 20% at least, though the some lenders could ask for as much as 30% up front. The other advantage of a larger deposit is the rates offered for the borrowing will be lower as well, reducing the interest to be repaid.
Howard writes for Just Commercial Mortgages the UK’s No1 site for the latest commercial mortgage rates and commercial property finance news.