As a business owner, you have the option of leasing or purchasing a commercial property in which to run your business. While leasing can be a quick and convenient option, most business owners prefer to own their own space. Similar to a personal mortgage loan used to buy residential homes, a business mortgage loan can be used to purchase a commercial property like an office building, shopping center, or warehouse. Learn more about taking out a business mortgage loan, the benefits of doing so, and why you should speak to a business banking professional before making a purchase.
How Business Mortgage Loans Work
A business mortgage loan is typically taken out by a business owner to acquire or redevelop a commercial property. Similar to a residential mortgage loan, a business mortgage loan uses the mortgaged property as a source of loan collateral. However, the two types of mortgages differ in that business mortgages typically have a much shorter term. On average, a business mortgage loan must be paid back in 5 to 20 years. Also, although both types of loans require the loan holder to make monthly payments, a business mortgage often has a large balloon payment at the end of the term.
Another major difference between a business mortgage loan and a residential mortgage is the loan-to-value ratio. Commercial mortgages often demand a significantly lower loan-to-value ratio than residential mortgages, generally ranging between 55 and 70 percent. Due to the higher costs of commercial businesses, business owners must have a decent amount of cash on hand to be eligible for a business mortgage loan. Commercial lenders will also want to see proof of how much revenue your business makes and how much of your income is profit.
Benefits of Business Mortgage Loans
There are many advantages that come with taking out a business mortgage loan. One of the most important includes the ability to maintain ownership of your business and business premises. When you lease a building for your business, you are always at risk for losing the space as you do not really own it. Although you will now be responsible for a monthly mortgage payment, these payments will likely not cost you more per month than you were paying for rent. However, as you will own the building the equity on the property will continue to grow with every mortgage payment you make.
Another major benefit of choosing a business mortgage loan over other types of unsecured borrowing is the lower interest rates. Commercial mortgages often come with lower interest rates with fixed monthly payments which mean that you can more accurately plan for future business expenses. Mortgage payments generally stay the same unlike leased buildings which are subject to rental fluctuations. Commercial mortgages can also be paid over a number of years, which allows for better financial planning. With set monthly payments, business owners can focus on other important aspects of the business, such as sales and overhead costs.
When you purchase a commercial property, you are also making noticeable capital gains. As property prices always rise in the long-term, buying a property for your business can be a good way to realize capital growth over a long period of time. Buying your own premises is a smart form of investment that can come with numerous perks, such as fixed ARP and flexible monthly payments. Another major perk to consider is the ability to generate extra income from your owned property. You can choose to rent out a section of the building to one or more other people for a monthly rent amount.
When you own your business, you have optimal control over how your business grows over time. If desired, you may have the option to extend your existing premises to avoid the costs and consequences involved in relocating. When you own the premises, you also have full control over any alterations made to the space.
Learn More About Business Mortgages
Maybe you have started a new business and need a place to build. Or perhaps you already have an established business but want to relocate. Whether you are interested in purchasing a retail space, warehouse, office, industrial site, or any other type of commercial property, a business mortgage can help. With a business mortgage loan, you can make one convenient, fixed monthly payment to your lender which makes it easier to plan for future expenses. For more information about business mortgage loans or for help obtaining a commercial mortgage, contact the business banking professionals at FVCbank today.