How a Commercial Mortgage Can Help Your Business

A commercial mortgage or commercial remortgage is a business loan which is secured against a commercial property.

Commercial mortgages are often used to buy business premises, such as offices, shops, restaurants, or pubs.

But they can also be used to buy other business assets such as plant or machinery.

As well as being a useful way of financing the purchase of business premises for a new business, commercial mortgages can also be an excellent way of funding the expansion of an existing business.

A commercial mortgage can also be used to fund investment in land or property which will be used for commercial purposes.

A commercial mortgage can be used to buy most types of commercial buildings, such as shops and offices, for both new and existing businesses.

The interest rates on commercial mortgages tend to be lower than the interest rates on unsecured business loans and the repayment terms are usually longer. This makes them useful for all sorts of business financing requirements.

What About a Remortgage?

If you already have a commercial mortgage on your company's business premises, you might find you could benefit from remortgaging.

A commercial remortgage allows you to unlock some of the equity that is currently tied up in your commercial property. It could also be a chance to switch to a more competitive, cheaper mortgage, especially if your or your company's credit rating and business history have improved since you took out your original commercial mortgage.

The money you free up through a commercial remortgage can be used for all sorts of things for your business. For example, you could purchase additional stock, or invest in new machinery or other fixed assets such as vehicles. Another use for the extra money can be to pay off outstanding bills, or clear other borrowings such as the company's overdraft.

Here are some typical uses for a commercial mortgage or remortgage:

• Borrowing money to buy a shop
• Raising finance to purchase an office building
• Buying a pub
• Financing the purchase of a restaurant
• Buying a hotel
• Buying a house to convert to a Bed & Breakfast (B&B)
• Raising finance to buy an existing business
• Clearing a business overdraft
• Improving business cashflow
• Buying new plant or machinery
• Financing the purchase of company vans and other vehicles
• Borrowing money to buy extra stock for your business
• Funding the expansion or refurbishment of your offices
• Borrowing money to pay for training
• Buying land for business purposes

Further information on commercial mortgages and business loans can be found at the Online Commercial Mortgages website.

Copyright 2004 David Miles. You are welcome to reproduce this article on your website, so long as it is published "as is" (unedited) and with the author's bio paragraph (resource box) and copyright information included. In addition, all links to external websites must be left in place.

David Miles is the editor of a number of personal finance and business websites including The Cash Clinic and Employee Contracts.

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Understanding a UK Commercial Mortgage

In many ways a commercial mortgage is just like a residential mortgage in that you pledge real property as collateral against a loan to either buy or refinance that property. You can also receive a commercial re-mortgage and use it as a line of credit for any business purpose.

When you use a commercial mortgage to buy property, or to raise funds for any other business purpose, the lender retains an interest in that property until the loan has been paid in full. Unlike other types of business loans, which usually have a relatively short repayment period, you can take out a loan for as long as 30 years if you like.

The lender receives repayment of the commercial mortgage principal and interest over the lifetime of the loan. If you default on the loan and go into arrears then the lender can foreclose and take possession of the property that was used as collateral.

Generally speaking, the interest on a commercial mortgage is tax deductible and the net proceeds of the loan are not considered to be taxable income. However, you should always check with your accountant to be sure because the tax consequences can be severe should it be determined that your usage of the funds was not for a qualified business purpose.

Should you be seeking a commercial mortgage for the purposes of operating your business, rather than actually buying property, then the lender will either want to re-finance your current mortgage, and include enough money to provide the amount that you are seeking, or they may arrange an equity line where they lend you the difference between the current value of your commercial property and the amount that you owe on the current mortgage.

There are generally two types of interest schemes available when you are applying for a commercial mortgage.

The fixed rate commercial mortgage establishes an interest rate that is in place either for the life of the loan or for a fixed period of time. If it is for a fixed period of time then it will normally convert over to the second type of rate, which is called a variable interest rate, after the fixed time period expires.

In some cases your lender may add a Early Redemption Charge (ERC) clause to your commercial mortgage contract which states that if you pay off the note prior to the end of the fixed rate period then the lender is entitled to a one-time lump fee to offset their loss of expected income. In some cases this ERC may extend to longer periods possibly up to the entire term of the loan. Be very sure to read your loan contract carefully to make sure that you understand the implications of the ERC if it is present.

With competition from lenders heating up you'll find that many of them are dropping ERC clauses all together. If there is one present in your loan contract you may be able to negotiate it away with little effort. It's worth trying in any case and you can always apply somewhere else if your lender is not willing to negotiate.

In the case of a variable interest rate commercial mortgage the rate is based upon those issued by Bank of England. The lender will usually state that the rate consists of the published rate, which will likely vary up and down over the life of the loan, plus some pre-determined premium that remains the same for the life of the loan. Be sure that you understand how frequently your rate will change and that you are comfortable with the amount that the lender is charging as a premium. As with any terms of your loan you can negotiate both of these factors.

A fixed rate commercial mortgage is a good choice when you feel that interest rates are headed up sharply and you want to lock in the current rates. On the other hand, if interest rates are in flux, and economic indicators point to a downtrend, then a variable rate may be your best choice.

Keep this strategy in mind during the lifetime of your commercial mortgage. If you are locked into a fixed rate, and interest rates have dropped significantly below what you are paying, you should consider applying for a re-mortgage and selecting a variable interest rate to take advantage of the lower rates. On the other hand, if you are in a variable, and all indicators are that interest rates will be skyrocketing soon, then look to move into a fixed rate so you can protect yourself against future increases.

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Commercial Lifeline are Commercial Mortgage and Bridging Finance specialists.

You can download our free Commercial Mortgage guides by visiting our Commercial Mortgage Guide page.

This article comes with reprint rights. Feel free to reprint and distribute as you like. All that we ask is that you do not make any changes, that this resource text is include, and that the links above are intact.

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Understanding UK Bridging Finance

Bridging finance, also referred to as "bridge loans" and "bridging loans", have nothing at all to do with re-constructing the London Bridge. Bridging finance is typically a short-term loan that a business uses to supply cash for a real estate transaction until permanent financing can be arranged. The word "bridge" conveys the fact that the loan is designed to get you over a temporary obstacle.

A typical use for a bridge loan is to cover situations such as when a company needs to close on a new office building before having sold their old one. They would use the proceeds of the bridge loan to continue making payments on the old building until it is sold.

Bridging finance almost always requires that you pledge some sort of collateralas security against the loan. You could offer up commercial or private real estate that you own,or are in the process of buying, machinery and office equipment or even existing inventory. If you have outstanding business and personal credit, as well as an outstanding relationship with your lender, you might be able to secure your bridge loans on just a signature.

Because the need for bridging finance sometimes arises suddenly and without warning, it is a good idea to establish a relationship with a lender before the actual need arises. When you do this you can arrange to be pre-approved for a specified loan limit. Later, when the need suddenly arises, you won't have to wade through all of the red tape. The typical term for a bridge loan runs from a fortnight to as long as two years. Of course, any terms can be negotiated and a motivated lender will work hard to match your needs.

Since bridging finance usually lasts for a relatively short period you may find that the interest rate you are being asked to pay is slightly higher than a more conventional type of loan. Lenders make their profit by charging interest across the life of the loan. The shorter the loan period the less interest they earn. As a result many lenders will often boost the rate by a 1/2 point or more. In general, the length of the loan, the amount of risk that is present for the lender, the quality of your credit history and the liquidity and value of your collateral all are used to help determine the interest rate.

Your best bet for securing a bridge loan at the most favourable rates and terms is to work with a qualified UK Commercial Mortgage Broker who understands the ins and outs of bridge loans. That way you can get your application in front of as many lenders as possible and end up with several who are willing to compete for your business.

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Commercial Lifeline are Commercial Mortgage and Bridging Finance specialists.

You can download our free Commercial Mortgage guides by visiting our Commercial Mortgage Guide page.

This article comes with reprint rights. Feel free to reprint and distribute as you like. All that we ask is that you do not make any changes, that this resource text is include, and that the links above are intact.

Article Source: http://EzineArticles.com/?expert=Darren_Yates

Total Cost Of Credit vs Monthly Payments

I read a press release the other day which points to the fact we need to be very careful with our finances. The subject of the release was home mortgages. A company was announcing the availability of 40 year mortgages for its customers. The stated purpose was to lower the monthly payments to make buying a home more affordable.

Whenever I hear the phrase “more affordable”, I put my hand on my wallet because the attempt to empty it will begin any moment. Almostnever is that phrase used in relation to the total cost of financing. It isalways used in reference to the size of the monthly payment, as in this example.

Let’s see what it really means. I did the math. A mortgage for a $100,000 home at 6% for 30 years would have a monthly payment of about $600 for principal and interest. You would pay about $216,000 over the life of the loan of which $116,000 would be interest..

A mortgage on that same home for 40 years would be at 6.25%, with a monthly payment of $565. The payments over the life of the loan would total about $271,200 and $171,200 of the total would be interest.

The forty year mortgage has a higher interest rate (usually between.25 and .50 percent) because the lender has his money at risk for a longer time (Lenders are well aware that time is money. You should be as aware).

This higher rate coupled with the extra ten years of the loan, has the borrower paying 47% more interest, or $55,000 more over the life of the loan. Even with a lower payment that supposedly makes it more affordable to purchase that home. Sounds like a pretty good deal for the lender.

Another problem the borrower faces is building equity much more slowly in the beginning of the loan. The extra interest expense paid for the extended length of the loan prevents equity from building up quickly. All of this for a monthly payment that is only $35 less.

You need to think in terms of overall cost and not just monthly payments. The total cost is what you will give back to your creditors. The focus on the monthly payment takes attention away from the total amount to be repaid. You need to look at this with any indebtedness, car payments, personal loans, credit cards: figure the total cost, not just what you pay each month.

You'll begin to hear more about these loans I'm sure. Think long and hard before you lengthen your indebtedness. The goal is to become debt free and to do it as fast as possible. Advise your families and friends to do the same.

David Wilding works with indiviuals and groups to help them get rid of debt. For the past ten years he has attempted to change attitudes toward and acceptance of personal debt. Visit his website http://www.debtattack.com for more ideas, tools, and strategies to become debt free.

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A New Choice for Home Financing: Correspondent Lenders

When you begin your search for a new home loan, one of the first things to consider is where you'll get the money. Your basic choices will be mortgage brokers and banks.

Your first instinct may be to go with your local bank, who you know from doing business with them for other things, such as your checking and saving accounts. But you've probably also heard that mortgage brokers can get you a better interest rate, since they deal with hundreds of lending sources. It can be confusing, but there’s a third source of funding that combines the best of both--the correspondent lender.

In order to understand the differences, let’s look at how the lending process works in each case. Mortgage bankers are given rate sheets by their institutions, telling them what interest rates they can quote to their clients on any given day. There’s only so much a bank can do, with regard to interest rates, because it needs to remain profitable in order to stay in business.

Mortgage brokers have an advantage in that regard. They're not loaning their own money, and are free to "shop your loan around," looking for the best terms from various lending sources. They make their money by getting loans at discount prices and then marking them up, making money on the difference. Since they have many sources to choose from, they can often find loans at lower rates than most banks.

The third alternative, correspondent lenders, combines the best features from both groups. Correspondent lenders are similar to mortgage bankers in that they make the lending decision and fund the loan with their own money or credit line. However, as soon as a loan has closed, it’s sold to another lender at a previously negotiated price. It’s the best of both worlds for you as a borrower. You'll be dealing with the banker who is funding your loan, yet that banker is able to shop your mortgage around, which can obtain you a lower interest rate.

Correspondent lenders can sometimes be difficult to find, since they're generally smaller institutions, operating on a regional basis, and it can be hard to tell whether a lender is a broker or a banker, based solely on the company’s name. One way to find out is by visiting the lender’s website, if they have one. You'll normally find a button you can click that will bring up a page containing a detailed description of the company. If the lender doesn't have a website, you may find their phone number in the Yellow Pages.

Although they may not always be easy to locate, with a little digging, you may find that a correspondent lender offers an attractive alternative to a banker or mortgage broker when it comes to shopping for your next home loan.

Copyright © 2005 Jeanette J. Fisher All rights reserved.

Jeanette Fisher is the author of "Credit Help! Get the Credit You Need to Buy Real Estate," and other books. Real estate financing questions? Visit the new Real Estate Credit Help Center for articles, Credit Tips ezine, and blog: http://www.recredithelp.com

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