If you are seeking to finance the purchase of land and/or buildings for your business, a commercial mortgage will probably provide the most flexible and affordable financing solution. A commercial mortgage is a specialised commercial loan, and as such, the lender has a legal claim over the property until the loan has been fully repaid.
As with a residential mortgage, the commercial lender can hold the title deeds to the property as security. In the event of arrears the mortgage lender can repossess the commercial property.
A business owner who wants to fund his/her premises may use an 'owner occupied' Commercial Mortgage.
A Landlord can 'buy to let commercial' that is to say the landlord can purchase a commercial property solely for investment purposes and rely on the rental income to cover the mortgage and provide a profit.
Buying Commercial Premises - Advantages & Disadvantages
Buying commercial premises can be a good investment but before you commit, it is important to consider carefully the pros and cons. The acquisition of a property adds stability to your business and the property itself can become a significant asset, so let's look at the upsides and the downsides to buying:
- A fixed rate mortgage means you will have predictable monthly repayments
- The repayments are likely to be similar to a rental payment on the same property
- You are protected from any sudden rent increases
- Interest payments on the commercial mortgage are tax-deductible
- Possibility to sub-let any free space, reducing your monthly repayments (lenders permission may be required)
- Potential gain in value of the property
- Substantial deposit will be required - would this money be better allocated to more important business purposes?
- Selling business premises can be difficult. What if you want to re-locate?
- If you have a variable rate mortgage, you are exposed to increases in interest rates.
- Ownership means you'll be responsible for ongoing costs such as security, maintenance, fixtures and fittings, insurance, repairs & renewals.
- Potential reduction in value of the property