For many people, taking out commercial property mortgages can seem like a huge commitment. You may wonder whether you might be better off simply renting premises in which to run your business.
Many business owners do in fact opt to rent their business premises rather than take out commercial property mortgages. It is a decision that only you can take, after weighing up the pros and cons. Here are some of the factors to consider.
Pros of Commercial Property Mortgages
• Your mortgage payments will probably be similar to what you would pay in rent on the same property, but you will end up owning the property, having it as a major asset, and having the benefit of appreciation in value.
• The lender has no stake in the property unless you default on the payment, and this does not change however much the value of the property may increase.
• You may be able to let out any free space in the property to other businesses (although you will almost certainly need the lender’s permission).
• Interest payments on the commercial property mortgage are allowable against tax.
• You have a certain amount of control over the payment schedule and if there are problems you have the ability to negotiate with the lender. If you are renting and the landlord imposes swingeing rent increases, there is very little you can do.
Cons of Commercial Property Mortgages
• You have less flexibility in relocating. Obviously, if you need to relocate, it is much easier if you are renting the property.
• As the owner of the property you are responsible for maintenance, security, refurbishing and keeping fixture and fittings in order.
• A commercial property mortgage can be a drain on your finances. You are unlikely to obtain 100% finance, so you will have to find the rest from other sources which you could otherwise use for cash flow.
What decision you make will largely depend on the nature of your business – for instance, how much flexibility you require and how mobile you need to be. If you don’t need to move around, it could be preferable to go for a commercial property mortgage and have more control. You have nothing to lose by checking out the leasing options open to you – if there is a very good deal available, this might help you decide. If you are still undecided, talk to an independent commercial mortgage broker who will help you weigh up the options.
Please note that the FSA do not regulate commercial loans or commercial mortgages