Advantages / Disadvantages of a Commercial Mortgage

A commercial mortgage can be used for several purposes including:

  • Buying business premises
  • Extending already existing business property
  • Investing in residential and commercial projects
  • Developing Property

Typical repayment periods of a commercial mortgage are usually from 10 years up to a maximum of 30 years. There are mortgages with which some lenders offer shorter repayment period. Some mortgage agreements offer you interest-only payments for the first 2 years
Before entering into any commercial mortgage deal it is wise to consider carefully the advantages and disadvantages of these types of loans.

Advantages to having a commercial mortgage:

  • You have ownership of your business and your business premises.  There are other types of lending options but that could entail you giving up a % of your business.
  • Substantial capital gain can be made by you when buying a commercial property. This can be a good way of realising capital growth over a long period.
  • Commercial mortgages typically have lower interest rates than other unsecured business borrowings such as loans or overdrafts. You could opt for a fixed rate commercial mortgage which could help you to accurately manage and forecast your business borrowing costs.
  • Commercial mortgage interest payments are tax deductible - which can contribute to reducing your business tax liability.
  • Commercial mortgage payment plans usually extend for a number of years allowing a business focus on other important business matters such as sales, monitoring overheads and training staff.
  • Some Lenders will agree to you renting out some of your surplus business space– this can bring in additional income to help you cover your commercial mortgage payments

Disadvantages of commercial mortgages:

  • A decent amount of deposit may have to be raised by you.  This is money that could have been be used in other business operations.
  • You need to ensure the size of business premises you are buying is large enough to take any future expansion into account.  You could find it expensive to move again if it is not if not.   If renting a business premises you could negotiate ending your rent agreement or find another business to take up your tenancy.
  • A variable rate commercial mortgage would mean you would be vulnerable to interest rate increases.
  • All maintenance costs, insurance and security costs would have to be paid by you.
  • Any loss of value on the property would result in a reduced capital value.