Business Finance Options

Commercial mortgages tend to be repayment loans - usually over 15 or 20 years, if it’s a new property, rather than the standard 25 years on residential loans. However, choices in commercial mortgages are increasingly mirroring those for residential borrowers, meaning that the following options are available if you shop around:

• Flexible mortgage – this is part overdraft, part repayment mortgage. An agreed percentage of the loan is available as a ‘drawdown’ arrangement, meaning businesses can take ‘tranches’ of money as and when they need it, but only have to pay interest on the actual amount used, not on the total facility.
• Repayment mortgage – a traditional repayment mortgage, where regular instalments comprise interest and capital repayments.
• Interest only mortgage – another traditional style mortgage, where repayments comprise interest only, with the capital being paid back in a lump sum at the end of the term. Obviously, businesses need a strategy to raise sufficient cash to do this when the time comes.
• Repayment mortgage, with balloon payment – this type of mortgage requires you to make equal monthly payments of capital and interest for a relatively short period of time. After you make the last instalment payment, you must pay the balance in one payment, called a balloon payment. Some lenders will give you the option to refinance the mortgage to help you stretch out the final balloon payment.

This can be a real boon because it means lower monthly payments during the course of the mortgage, freeing up cash for other things. However, it can lull you into a false sense of security, as it’s tempting to forget the big balloon payment waiting around the corner.