Commercial Mortgages

Many people feel that a commercial mortgage is an ideal way to finance the development of a new or growing business, as they are considered flexible and affordable financing solutions.

For businesses that are confronted with severe financial difficulties which could lead to insolvency or bankruptcy of the partners, a commercial mortgages is often regarded as a saviour in an attempt to re-gain financial stability.

Commercial Mortgages do have some similarities with residential mortgage. E.g., the commercial building or a business real estate is the security pledged for the repayment of the loan, and not a residential property. In order to attain a Commercial Mortgage the business in question must be capable of demonstrating solid financial credibility and credit worthiness in order to receive acceptance for the loan.

Business may use a Commercial Mortgage for a variety of purposes:-

  • Purchase of new business premises (expansion)
  • Residential and commercial investment
  • Property development

How to get the most out of a Commercial Mortgage

Getting the best out of a Commercial Mortgage is a fine art and ideally you should always seek the advice of a FSA Regulated Independent Commercial Mortgage Broker.

It is crucial to pay the right attention to interest rates, the duration of the loan and the repayment schedule stipulated in the contract (these are interlinked variables that can influence the quality and the efficiency of the underwritten commercial mortgage). It is also important to note that it is crucial to select the repayment plan that best suits your business needs.

Commercial mortgage interest rates

Commercial fixed interest rates

Commercial fixed rates are more suited on the premise of continuously rising interest rates, equally they are preferred by business owners who wish to stabilise the monthly payment amount for obvious reasons. Commercial fixed rate mortgages can also incur an early redemption charge (ERC).

Definition of ERC: After the fixed rate period of repayment has expired, the borrower benefits from an extended period of repayment, with the condition to pay a variable rate chosen by the lender from that point onwards.

Commercial variable interest rates

Commercial variable interest rates are primarily influenced by the changes in the base rate established by the Bank of England. The interest rate fluctuates according to the local market rates as well as other factors, and is often avoided in highly unstable markets.

The Advantages of a Commercial Mortgage

  • Tax deductibility - net proceeds of the loan don’t represent taxable income
  • Possibility to retain ownership of your business and business premises
  • Lower interest rates - When compared to other types of loan
  • No rental instability - Rental can fluctuate unexpectedly
  • Your business becomes an asset that can grow in value
  • Efficient cash flow management

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