Intended for those in business, commercial mortgages are essentially business loans made using commercial property as the collateral. Often subject to higher interest rates than regular residential loans, they can help business people make substantial capital gains from their properties over a long period of time.
A commercial mortgage is parallel to a traditional, residential mortgage – in that money is rented against a property. The sorts of properties projected for commercial mortgages, however, are commercial buildings or other business real estate. The system of commercial mortgages exists to help people in business purchase new property, or finance any existing assets.
The normal terms of such business mortgages are usually between 10 and 25 years, with commercial mortgage lenders offering prospective borrowers up to 70% of the value of the business’s property (although 65% is standard). The application procedure is infinitely more complicated than with loans for residential properties because of the complex assessment of the value and worthiness of a business. Due diligence thus takes a lot longer!
A commercial mortgage lender generally looks at previous performances, current position, and the long term plans of a business. Borrowers are normally required to provide detailed business plans demonstrating that they can make the expected repayments. A professional valuation is also usually required before lenders offer business mortgages to prospective clients. Rates are then quoted to the borrower based on these factors – So in essence, the success of a business determines how high commercial mortgages rates are. If a business venture poses a higher risk, its commercial mortgage rate would be set very high, and may rise even further.
To provide assistance to business owners, there exists an industry of commercial mortgage brokers. These are specialists who advise borrowers on the best commercial mortgage interest rates most suitable for their businesses. For example, a commercial mortgage broker may suggest taking out a commercial mortgage loan on a fixed rate, which helps businesses to manage and forecast payments better as interest is fixed at a single rate.
Before contacting a commercial mortgage broker though, a commercial mortgage calculator comes highly recommended to weigh up the pros and cons of taking out a business mortgage. Commercial mortgage calculators provide the borrower with a quick assessment of whether they can afford the monthly repayments on their commercial property investment.
Advantages of Commercial Mortgages
Commercial mortgage loans are ideal for those businesses that are on the lookout for new premises, extension or the development of a property. In addition, they enable borrowers to maintain the cash flow for their business by providing the necessary capital to invest in funding growth and expansion. Crucially, commercial property mortgage allows business owners to keep full ownership of their premises.
Disadvantages of Commercial Mortgages
However, in addition to the potential high interest rates as mentioned previously, a commercial property mortgage borrower may incur additional costs such as arrangement fees and security, and valuation charges will apply. These commercial mortgage fees can be substantial, especially if a quick resolution to the application is required.
About the Author: Dominic Lambrinos
Dominic Lambrinos is a financial expert who provides professional business finance solutions, commercial financial engineering, expert review of financial submissions, negotiation, equity raising, business sales, and trade financing. Dominic is also a sought after finance business trainer, and accomplished public speaker.
Under Dominic’s guidance , his team can also prepare professional financial submissions, review financial statements, provide financial accounting, business administration, development of information systems, marketing and sales skills, computer and Internet sales skills.