Commercial Mortgages - Pros and Cons Compared With Renting

Financing a commercial property purchase, such as a shop, warehouse, office or factory, will involve a good deal of planning. If you are running a small business then it is likely that you will need a commercial mortgage to make such a purchase, and this will usually require a lot of research before you decide which mortgage deal is best for your circumstances.

You will need to compare commercial mortgage deals across a range of lenders, but before you do so, consider these pros and cons of purchasing using a commercial mortgage deal rather than renting a property.

Pros for buying with a commercial mortgage instead of renting:

1. Using a commercial mortgage means you can purchase a property with fairly low costs at the outset

2. You will be able to be flexible in creating a repayment plan to suit the needs of your particular business

3. The interest payments on commercial mortgage deals are tax-deductible

4. The ongoing mortgage payments may well be very similar to the rental payments you would otherwise have to make

5. The property itself will be an asset for you company, and if it increases in value your business capital will increase along with it

Cons for commercial mortgage deals:

1. Unlike when you are renting a property, a purchase means you will have to organise any maintenance needed and pay in full

2. If the property you have purchased goes down in value, your business capital will go down with it

3. If you run into financial trouble and have to default on mortgage payments, the property may be repossessed by the lender

4. Purchasing a property tends to be a long-term commitment, with repayments running for 15 years or more, so it may not be ideal if you need to change your business premises or location at short notice

5. Depending on the capital you have available, it may be tricky to come up with the necessary deposit, which normally has to be about 20-30% of the total value of the property.

Also: you will need to provide evidence of your business' profitability and longevity

The evidence asked for by the lender will often include a range of specific documents. These can include a detailed business plan outlining how you intend to repay the mortgage and how the purchase may affect your business' cash flow. They may also ask for projections for the next few years and audited accounts for the last two years, as well as a review of your current business performance. Lenders will often also ask for the personal details of key stakeholders for credit checking.

Making the decision

If you have decided to go for a commercial mortgage deal, it is vital to get all the information you can before choosing which deal to opt for. Financial and legal advice is usually a key part to getting the correct mortgage deal for your business' circumstances, so is comparing mortgages deals across a range of lenders and across different types of mortgage deal. Then you can make an informed decision, based on all the facts.

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