5 Frequently Asked Questions About Commercial Mortgages
Should I Take Out a Commercial Mortgage?
All personal circumstances differ, but in general terms' taking on a commercial mortgage has many advantages for a business. Most obviously, you would own your own premises, not having to rely on rental contracts and at the same time own a valuable asset which would most likely increase in value over time. If or when you finally decide to sell your office, factory or warehouse you could profit from a capital gain at the sale.
A commercial mortgage much more long term thinking, renting a place of work will only allow short to medium term planning as you won't know by how much the rent could rise at a renewal date in the future. With monthly mortgage payments the amount paid will be stable, (especially if you can gain a tracker rate) over a much longer period of time, fixing costs and allowing foundations in other areas to be set.
Other business opportunities are opened also, such as the ability to be landlord yourself and sublet a portion of your premises, creating a new revenue stream for the business. If the property is too big for just your company, subletting to numerous companies can go a long way to covering any commercial mortgage payments you have.
So What Are The Best Advantages of a Commercial Mortgage?
You mean besides potential capital gains and income from subletting, then how about tax deductions? Most businesses that pay commercial mortgage can claim tax expense on the payments, meaning tax is reduced on gross annual profits; it doesn't get much better than leaving the taxman short changed!
Another of the indirect goodies a commercial mortgage delivers is the option to avoid having to sell a stake in your company for capital injection. Using the equity in your commercial mortgage is a self generating way to get the cash you need to expand or pay debt off without chipping away at the control of your company.
As already stated a few times, commercial mortgages are overall more stable than renting as you can plan longer term for costs than every year or few years to see how much the rent will increase.
Who will Responsibility lie with in the Company for the Commercial Mortgage?
This question all depends on the chain of command within your company, though it will always be with whoever is at the top of the pyramid. Partners in a business will be jointly responsible for any commercial mortgage, while a sole trader will have the entire burden to deal with.
In a company however, all directors in the business become liable for an outstanding commercial mortgage. Individual directors will have to agree to take on the personal responsibility for the commercial mortgage by signing a director's guarantee, these will be essential.
What Amount Can I Borrow and Over What Term?
The maximum term for almost all commercial mortgages is around 20 years, though for older buildings you might only be able to secure a 15 year term at best. Though rarer than they use to be, interest only mortgages are available, but they will almost certainly include the caveat that they revert to a capital mortgage after a certain number of years. This is partly to help get the business firmly up and running without overloading the business with a crushing overhead straight away.
The lower the Loan to Value (LTV) rate, the better the chance of a commercial mortgage being approved. So the more you can put up front in the deposit the better your chances, for commercial mortgages, the minimum deposit will average somewhere between 20-30%, with 20% being the absolute minimum, higher than for a residential property and mortgage. Having a larger deposit also results in lower interest rates on the mortgage, saving thousands of pounds in the long term for your business.
All personal circumstances differ, but in general terms' taking on a commercial mortgage has many advantages for a business. Most obviously, you would own your own premises, not having to rely on rental contracts and at the same time own a valuable asset which would most likely increase in value over time. If or when you finally decide to sell your office, factory or warehouse you could profit from a capital gain at the sale.
A commercial mortgage much more long term thinking, renting a place of work will only allow short to medium term planning as you won't know by how much the rent could rise at a renewal date in the future. With monthly mortgage payments the amount paid will be stable, (especially if you can gain a tracker rate) over a much longer period of time, fixing costs and allowing foundations in other areas to be set.
Other business opportunities are opened also, such as the ability to be landlord yourself and sublet a portion of your premises, creating a new revenue stream for the business. If the property is too big for just your company, subletting to numerous companies can go a long way to covering any commercial mortgage payments you have.
So What Are The Best Advantages of a Commercial Mortgage?
You mean besides potential capital gains and income from subletting, then how about tax deductions? Most businesses that pay commercial mortgage can claim tax expense on the payments, meaning tax is reduced on gross annual profits; it doesn't get much better than leaving the taxman short changed!
Another of the indirect goodies a commercial mortgage delivers is the option to avoid having to sell a stake in your company for capital injection. Using the equity in your commercial mortgage is a self generating way to get the cash you need to expand or pay debt off without chipping away at the control of your company.
As already stated a few times, commercial mortgages are overall more stable than renting as you can plan longer term for costs than every year or few years to see how much the rent will increase.
Who will Responsibility lie with in the Company for the Commercial Mortgage?
This question all depends on the chain of command within your company, though it will always be with whoever is at the top of the pyramid. Partners in a business will be jointly responsible for any commercial mortgage, while a sole trader will have the entire burden to deal with.
In a company however, all directors in the business become liable for an outstanding commercial mortgage. Individual directors will have to agree to take on the personal responsibility for the commercial mortgage by signing a director's guarantee, these will be essential.
What Amount Can I Borrow and Over What Term?
The maximum term for almost all commercial mortgages is around 20 years, though for older buildings you might only be able to secure a 15 year term at best. Though rarer than they use to be, interest only mortgages are available, but they will almost certainly include the caveat that they revert to a capital mortgage after a certain number of years. This is partly to help get the business firmly up and running without overloading the business with a crushing overhead straight away.
The lower the Loan to Value (LTV) rate, the better the chance of a commercial mortgage being approved. So the more you can put up front in the deposit the better your chances, for commercial mortgages, the minimum deposit will average somewhere between 20-30%, with 20% being the absolute minimum, higher than for a residential property and mortgage. Having a larger deposit also results in lower interest rates on the mortgage, saving thousands of pounds in the long term for your business.
Source...