Commercial Mortgage loans are often used by companies who want to finance or purchase building or land for business usage. Many business find that a commercial mortgage loan can offer a great deal of flexibility that other commercial loans do not offer.
Commercial mortgages can also be affordable when other lending options are found to be too expensive.
Like many loans, the building or land is held as collateral by legal claim until the mortgage is paid in full. Many commercial mortgages are customized to fit the need of the business. This is one reason why these types of loans work well for expanding businesses.
The range for how a commercial mortgage can be used is very wide. These loans can be used to purchase an existing business, land, warehouses, factories or offices.
Commercial Mortgages have higher interest rates than conventional home mortgages. The loan structure can be complex. The complexity of these loans is usually tempered with incentives for business borrowers.
Benefits of A Commercial Mortgage Loan
Because of the wide range of uses that commercial mortgages can bring to a business they are often more favorable than traditional bank loans. One reason for their popularity is the fact that they are typically easier to get than a traditional bank loan.
The principal reason that a commercial mortgage is easier is that the land or building being purchased is also the collateral. The lender holds a legal claim over the building until the loan is paid for completely.
A benefit to a commercial mortgage is that even though the lender holds a legal claim, most business properties increase in value over the loan period. This means that the business that took out the initial commercial mortgage has an asset that is increasing in value.
Another benefit to commercial mortgages is that interest paid on a commercial mortgage is often tax deductible. This means that expanding a business is easier to finance when using commercial mortgages. Many lenders offer commercial mortgage loans that range from five years up to thirty years.
A basic requirement is that commercial mortgages often only cover 80 percent of the capital needed. This means that qualified business must put up at least 20 percent of the acquisitions price. This should come as no surprise to business professionals.
Commercial mortgage limits differ from lender to lender. The average amount of a commercial mortgage has a range from ?50.000 to over ?40 million. The wide range of available funding makes growing a business much easier.
What are the Disadvantages of A Commercial Mortgage?
Most commercial mortgages are considered to be long-term financial responsibilities. The length of the mortgage varies depending on the application. Entering into a commercial mortgage is a responsibility that requires thought and planning.
It is important that loan repayment be consistent and on-time. Poor management of cash flow can result in late payments. Late payments will lead to higher interest and potentially a bad credit rating.
Businesses that are considering expansion via a commercial mortgage should perform a cash-flow analysis.
The cash flow analysis should also include a worse-case scenario. A plan of correction should be implemented in case future cash flows do not support a commercial mortgage payment.
Businesses that are looking to expand can consider a commercial mortgage. These mortgages are flexible and often less expensive than traditional bank loans. The benefit to a commercial mortgage is that they can be designed to meet the needs of each applicant. These types of mortgages take into consideration the needs of the business.
The downfall can be that a commercial mortgage is a long-term financial commitment. Proper planning for future cash flow should be a primary consideration before applying for a commercial mortgage.