When A Commercial Mortgage Makes Sense!

If there is anything second to gold, it is probably real estate. This is where liquidity is changed into a highly rewarding asset class. Full time rents, development opportunities, time shares and more, many would say once you own property there is no shortage of channels of revenue. There is also an opportunity for scale: whether you construct a high rise corporate tower, inviting businesses, food chains and retailers in or erect a hotel and play host to the pantheon of tourists, travelers and businessmen checking in and out from time to time and splurging on premium luxuries, the opportunities are as big as your ambition. It has been shown that in the long term Commercial property is one of the better performing asset classes so it’s not surprising why it is so coveted by many investors.Possibly that’s why investors don’t mind large amounts of money for commercial properties. They know what true worth commercial property has. They don’t mind buying a commercial land on bridging finance and later securing a commercial mortgage to pay it off. And if it is planned nicely, it’s not surprising to see upward growth in asset value and asset revenue.The loans are generally made for about 10 years and secured against the property. If the payments are missed, it is repossessed. Typically such financing options are used:• To buy new premises• For extending the existing premises• For commercial and residential investment• For developing any property for other purposesCommercial Mortgage and why it makes senseIf you or your business is looking to purchase premises or wishing to include commercial property to your portfolio, commercial financing is what you need. It can be difficult acquire with a lengthy approval process, sometimes high interest rates and even personal guarantees sometimes required. Nevertheless, without sufficient cash in hand to finance a purchase it remains the most sensible way of getting financing to expand a property portfolio or grow a business.Let’s have a look at why commercial mortgage makes more sense than other forms of business financing.• Tax benefits: In most cases, mortgage repayments are tax deductible. HM Revenue and Customs (HMRC) usually regard the interest payments as allowable expense for tax purposes. So if your business ever buys a commercial property on mortgage, you can use the payments in Self Assessment tax return or company accounts for tax deduction.• It is cheaper than business borrowing: While commercial mortgage is not the only way to procure finance, it may be cheaper than other methods. Since the loan is secured lending, it is cheaper than unsecured loans and credit. In fact many companies consolidate their debts through commercial loans.On the other side, commercial loans may ask the borrowers to put down a significant percentage of the total amount to secure the deal. The payment may go as high as 30-40% in some cases. Similarly, borrowers may be required to deposit guarantee besides the collaterals.Having said that they are viable options, possibly a little more than other unsecured loans. So if you plan to acquire commercial properties or land, expand facilities or refinance debt, commercial mortgages may be the way forward. As always though, be sure to consult an Adviser when making your decision.Copyright © 2011

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