Commercial Mortgages Explained

A commercial mortgage is a loan taken out to purchase a property to be used for business purposes. The mortgage is repaid within a certain period of time and interest will be charged. In addition there will be an arrangement fee to pay, typically in the order of two percent of the amount borrowed. You will also be required to offer some form of guarantee to the mortgage provider, such as the property you’re buying, or other business asset, in the event of a default on payments.

The advantages of a commercial mortgage

A commercial mortgage can be a cost-effective way to fund many business activities. They can be used to develop an existing business through the purchase of increased office or factory space. A commercial mortgage can be used to buy an existing business with property attached, and they can be used to fund investment in land and property used for commercial purposes. A commercial mortgage can also provide a way of raising additional business loan finance, if the finance is linked to business activity.

Commercial mortgage interest rates are usually lower than those charged for other types of unsecured business loan and the repayments are usually made over a longer period, making the funding of the loan attractive to some businesses. Repayments can also be fixed, so you know exactly how much the cost will be each month.

What types of properties are applicable?

Commercial mortgages are available for a wide range of business needs and properties. They are commonly used to purchase businesses such as restaurants and pubs where the business and property are sold as one. They are also used to fund business growth, typically for the purchase of additional office space. And they can be used to buy land for business development, such as the construction of retail parks and business units.

Funding the mortgage

A commercial mortgage operates the same way as any other loan. A sum of money is borrowed and the borrower is required to pay back the sum, plus interest over a period of time.

The amount of loan required and the level of interest charged will depend on your credit worthiness and an assessment by the provider of your ability to repay. If you have an exemplary business record and have other visible business assets which can be used as a guarantee, then you’ll have no trouble getting a mortgage at an attractive rate of interest. If you have no business experience, or have suffered business problems in the past, you’ll need to work harder to convince the provider that you are a safe bet. By preparing a strong business case, you’ll improve the chances of getting a mortgage and getting a more attractive rate of interest.

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