Commercial Mortgages give business owners and investors the ability to buy their own offices, factories and warehouses, growing their businesses and giving them a solid foundation. That is one general advantage; below we’ve listed a few more specific advantages of commercial mortgages.
1. You Own The Business Property: Obviously the property you buy to house your business is a significant asset for you business. Even through recession, the British property market usually finds that over the long term property prices are always rising, so you are looking at a healthy profit on the property after a decade or two.
2. The HMRC is your best friend: Imagine if you could do this with your home mortgage: Deduct the interest you have to pay from your tax bill. You would be substantially better off very soon. Your business has this facility, Customs and revenue, the HMRC, will allow you to claim the interest payments on a property loan as an expense when working out what tax you have to pay.
3. Stable payments: Commercial mortgage payments are generally structured in order that they remain stable. This means that it is easy to manage your business expenses as you know what you are paying. Rent payments can be volatile and can rise significantly on an annual basis when your rent review is carried out.
4. Cheap Borrowing: Some businesses borrow commercial mortgages to consolidate other business debts, in much the same way that households have done with residential mortgages in the last ten years. If your business is paying a high interest rate on an overdraft, unsecured loan or credit card it might be more cost effective to use a commercial loan to pay these unsecured borrowings.
5. Rental incomes: When purchasing commercial premises, some businesses acquire property that is too large for their present needs. While they can utilise the premises to expand in the future, it also creates potential for sub-letting the space in the immediate term in order to generate additional streams of income to help repay the mortgage. This is a legitimate practice, but you may need your mortgage lender’s permission to do this.
6. Cash Flow Eases: Touched on earlier in the list with stability, a commercial mortgage is going to be easier on the cash flow. With commercial mortgages being spread over decades there is little volatility in the mortgage payments, allowing you to focus solely on the profit/loss margins of your business.
7. You Have Complete Control: You don’t have to consider ways of raising capital that would dilute control of your company, i.e. selling shares in your business. On top of this any investors would expect a profit on their money or a dividend payment, sucking money out of your company. A commercial mortgage lender will only gain the interest from the mortgage, which in itself is spread over the life of the mortgage. You will have a valuable asset in your company and retain 100% control, so you can decide the direction and plan of action for your business and the property.
8. You retain the capital: When purchasing commercial property, raising investment capital using a commercial mortgage means that you won’t have to expend all the capital that you have available. You can put forward a deposit and borrow the rest from a lender, allowing you to invest the remainder of your cash reserves in other more useful ways.
9. You control the property: If you rent a property, you are restricted in several ways in what you can do. You may need permission from the landlord to alter the layout, to redesign or to update the usage of the property. If you decide to take out a commercial mortgage, it allows you to take ownership of the property, which of course means that you can make whatever changes to it you wish without having to seek a landlord’s permission. Obviously you still need to stay within local planning regulations.
10. Save Money: You might be paying interest on the mortgage, but overall you will most likely be saving money compared to renting a property. Even after rent rises and mortgage interest rates, a commercial mortgage comes in at a lower rate than rent would, a landlord is looking to make a profit and cover his expenses in a shorter time. A mortgage is repaying the loan over a long term period so has as much interest in setting a lower monthly payment rate, if your business does not prosper the lender won’t get its money back.
As you can see, the advantages are broad in scope and commercial mortgages save more money than they lose compared to the alternatives.
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