As a business owner or CEO, you may be wondering if a commercial mortgage to buy the space you need to grow your business is the right move for you. If you're considering purchasing property or real estate, applying for a commercial mortgage may be your best solution. Commercial mortgages are considered secured, long-term loans. They can be an ideal way of raising and borrowing capital in large amounts for a wide variety of property-related purposes.
However, to make an informed decision and distinguish whether your business stands to benefit, understanding this loan product is crucial. Let's explore what a commercial mortgage is, what it's used for, and the advantages to help you make an informed decision.
What is a Commercial Mortgage?
Business mortgage loans, also referred to as commercial mortgage loans, are similar to a home mortgage, except that it is a mortgage or loan used by a business for commercial real estate.
Commercial real estate is defined as property used exclusively for business-related purposes, and that generates income. If you run a business to generate income, regardless of the business type, the property where you operate the company is likely commercial real estate.
What Are Commercial Mortgages Used For?
Business owners take on a commercial mortgage loan to either buy or renovate commercial real estate. As a business owner, you need a place to operate your business. Most times, you won’t have the large lump sum of cash needed to buy an entire piece of commercial property; or if you do, you don't want to spend all of your available money on a space for your business. Either way, taking out a commercial mortgage loan allows you to purchase a space and pay back the loan with interest through monthly payments.
Furthermore, the actual workspace/building you end up buying or renovating with the loan secures the loan. In other words, if you stop making the monthly payments and can no longer pay back the loan, the bank will then foreclose on the real estate.
Advantages of Commercial Mortgages
One of the most significant advantages of taking out a commercial mortgage is that it's a long-term loan, which allows you to spread out payments over a long period of time. This allows you and your business to keep more cash on hand and stay more liquid while owning or expanding into a new space. However, keep in mind that the amount you could borrow will be based upon the purpose behind the loan, such as paying off existing debts to making property improvements to purchasing a property. Keep this in mind – this will set a limit to how much you could borrow, and you will be paying interest on the amount borrowed.
Also, as mentioned previously, commercial mortgages are secured by either the property you're purchasing or a property you already own, making it easier for lenders to offer you a favorable interest rate. Such a rate can vary depending on your current financial situation. If at any point you have the necessary capital, you can choose to pay off the loan early. However, there will often be a fee associated with the early payment of the entire loan.
To learn more about commercial mortgages and determine whether one is right for your business, contact Mechanics Cooperative Bank! We are happy to answer any questions and help you get started.