An Overview Of Small Business Mortgages

A small business mortgage loan is something to which small businessmen generally turn to whenever there is a requirement to buy some business property or any other business asset. Business mortgages are offered by banks for around 20 years, during which the lender has legal rights over the asset purchased until the loan is fully paid back by the borrower.

Getting this type of loan from any reputed UK based company is not tough if you have a satisfactory financial record and have the ability to repay the loan. You will need to convince the lender about your capability to repay back the loan in time. Also be prepared to make a down payment of 20-30 per cent of the purchase price.

Before applying carefully consider the type of interest rate which suits your business and financial position best. You need to choose between a variable and fixed interest rate.

The variable interest rate changes as per the current market rates and there is a higher risk element involved. On the other hand, a fixed interest rate means you need to pay a constant interest rate where you can benefit if the market price increases.

The second most important thing that you need to consider before applying for a small business mortgage is the repayment schedule of the loan. The longer the repayment schedule, the higher your total outgoing during the full period of loan.

For a small business mortgage repayment schedule there are four main options such as:

Equal payments:

This is the most popular one where the borrower needs to pay the same fixed amount of money regularly until the repayment of the mortgage loan is over. With every payment some part of the actual business mortgage loan is paid along with the interest.

Equal payments with a final balloon payment:

Here regular equal payments need to be made for the principal and interest for a shorter period of time. After the last payment is made, the borrower has to pay the remaining balance in one go which is referred to as a balloon payment. Here initially the borrower has to pay less but the big balloon payment is waiting just round the corner.

Interest-only payments with a final balloon payment:

With this type of repayment schedule, the borrower makes regular payments to cover the interest only. The whole of the principal sum is made in one final payment at the end.

Endowment small business mortgage:

Here the principal sum is paid back to the lender through some form of endowment. Several types of endowments can be used for this type of business mortgage such as a personal or executive pension plan policies, a life assurance policy or a personal equity plan. Here the interest is paid back through the normal channels.

Last but not the least, make a careful selection of the lender to get the best deal. You can look for some consulting company which has a network of top lenders in the UK and such a firm can easily get you the most competitive small business mortgage loans.

About the Author:
Richard Heaney is a writer on business and finance specializing in writing on financial planning, business mortgages, commercial property mortgages and buy to let commercial mortgage.

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