A commercial mortgage is a method for businesses to secure the payment on a building or property which will be mainly used by the business. Commercial mortgages are taken out by all kinds of businesses including sole traders, partnerships, limited and public companies. Commercial mortgages can be used for a variety of different purposes and they possess different attributes and terms to individual residential mortgages.
Commercial mortgages are usually used to finance a new property for the purpose of the business, but there are other motivations for businesses to take out a commercial mortgage, for example they can be used to help finance the rebuilding or redevelopment of a property owned by the business, another use could be to help finance the purchase of land which will be used by the business or will be used to build a property on.
Businesses commonly use commercial loans to facilitate the purchase of properties such as headquarters, warehouses, shops, offices and even land. Commercial mortgages are also been used to help finance the takeover or acquisition of another company or another company’s building.
Commercial mortgages are usually much more flexible than residential mortgages, but often a business owner will find that the interest rate will be slightly higher. Most commercial mortgages are secured against the property itself, therefore the lender will always have a legal right over the property until the full balance has been repaid, and this is used as protection for the lender in case the borrower defaults on their payments. Commercial mortgages are typically repaid over a period of between 10 and 20 years, this however does entirely depend on the borrower’s circumstances and how much finance has been borrowed for the mortgage.
Financial institutions and mortgage companies will usually offer a tailor made mortgage for business clients due to the specialist nature of the transaction, also by offering this flexible service, the mortgage company will entice the custom of valuable business clients which can prove to be a very successful investment for the company. With flexibility comes complexity, there are more terms and conditions involved in commercial mortgages which can make them very complicated, many companies get help with this by hiring a commercial mortgage broker or a consultant to smooth over the whole process. Without a commercial mortgage, it is very difficult for companies to improve and expand especially small or new companies who are looking to get a foothold in their respective industry.