Commercial Mortgages – Pros and Cons Compared With Renting
Commercial mortgage loans have become an affordable option for entrepreneurs who no longer fancy renting. Whether it is for real estate or for a business premise, the advantages that this simplistic type of financing far outweigh those of renting.
Merits of Commercial Mortgage
- Maintains Cash Flow Within the business
The design of a commercial mortgage loan is simple, you make the agreed monthly payments with interest factored in, until you complete the principal amount borrowed plus interest. The product focuses on the short-term and by so doing correlates the long-term funding to your long-term income. The cash in the business is not tied to the long-term asset and thus remains in the business in liquid form.
- Make your dream a reality
If you take up a commercial mortgage loan with your business name, it is the business that will be making the payments although you are still responsible for ensuring that this happens. If you take the loan personally, you will pay the loan from your independent sources like employment. In either case, you will have a flat rate amount to pay every month. You don’t risk sudden increase in monthly repayment amount like with rental payments which can be hiked any time. To add to this, commercial mortgage loans are tax deductible. If you have dreamed of owning your own office, acquiring more storage space, tapping into residential investment, take advantage of a commercial mortgage product.
- Increase your working capital
With a commercial mortgage, you can capital raise on your property to finance another project or investment in your business. This means you no longer have to be a prisoner of restrictive lease agreements, and can take better control of the future of your business and finances.
Demerits of Commercial Mortgage Loans
- Require Commitment
A commercial mortgage contract is usually a big commitment as it will take between 5 to 30 years to complete repayment. You are expected to be disciplined in making your monthly repayments failure to do so will see your interest increased or worse your property repossesses.
- Large Deposit
Before obtaining a commercial mortgage, you may be expected to give a deposit of between 25 and 35 percent of property value. Issues of licensing, environment and planning could also crop up.