What Are Commercial Property Mortgages?
As a business gradually grows, they tend to acquire new and better equipment and hire more workers and ultimately expand on the operation. This usually leads to a very common requirement, more space.
There are various levels of expansion, but nearly all of them can only be made possible if one acquires more space. One sees this with smaller startups that prefer to rent, whereas more established organizations prefer to take on a commercial mortgage.
We’ve put together this article to help you understand what Commercial Property mortgages are and how they can benefit you.
What Are Commercial Mortgages?
A commercial mortgage in simple terms is a loan taken on by a business to buy land or property for the operation of said business. The money is usually borrowed from a specialist lender or a high street bank and follows the common system of monthly payments including interest.
Although it might seem that owning a business is the only way to acquire a commercial mortgage, this isn’t true. One can take on a commercial mortgage as an investor, to buy the property and then lease it out.
Is Buying Really Better Than Renting?
Given the fact that land is an asset, it nearly always makes more sense to buy as opposed to rent. Not only is it a financial investment, it also gives one more flexibility to utilize space as there are no rules set by a landlord or renting agency. Although interest is charged, one can overlook this as it is tax-deductible. With the only downside being, being responsible for the property’s upkeep, the pros definitely outweigh the cons.
Once you have bought a property it becomes an asset that one can use strategically for the business’s advantage. This involves renting, as long as it is legal under the conditions of the commercial mortgage.
Commercial Property Mortgage vs. Residential Mortgage
A commercial mortgage is a loan taken on by a business to buy a property for the operation of the business, whereas a residential mortgage is a loan taken on by a person to purchase a home.
Residential mortgages tend to have fixed interest rates, on commercial mortgages fixed rate,s and variable rates that fluctuate as the Bank of England base rates fluctuate are available.
Commercial mortgages tend to have higher interest rates as lending money to businesses is the risk can be deemed higher. On the other hand, residential mortgages are seen as a lower risk being residential property.
Key Features Of Commercial Mortgages
Here are the key features of commercial property mortgages:
- The interest rates offered by commercial mortgages are better compared to regular business loans due to the fact that they use the property as collateral.
- Commercial mortgages don’t necessarily have “fixed” rates.
- Generally, commercial mortgages carry higher interest rates than regular home mortgages since they have a different risk from lenders.
Benefits of Commercial Property Mortgages
- Possibility of renting the property for extra income
- The interest cost is a tax-deductible
- The property is an asset whose value can increase and thus increase your capital
How to Get a Commercial Mortgage
Firstly one must understand their requirements and get a basic understanding of the market. Ultimately zero in on a lender whose terms and conditions are comfortable and of minimum risk to your entity.
Consider PFN Finance to help you.
If you plan on taking out a commercial property mortgage with us, keep in mind that certain documents will be needed to complete your application. Be sure to have:
- Your tax returns and accounts
- Details of business partners and/or directors
- A recent bank, liability, and asset statements record
- Current performance figures
- Projected performance figures
Conclusion
We hope this article helped you understand commercial property mortgages and their benefits better. If you’re considering taking out a commercial mortgage, PFN Finance is the perfect way to go about it. Our experts will be happy to help you!
