Take out a commercial property mortgage or rent?

Buying a commercial property is a big step for your business. To do this, it's likely you'll need a commercial mortgage to finance the purchase. This has several advantages and disadvantages when compared with renting.

Commercial property mortgages allow you to eventually own your business premises as an asset (as opposed to paying rent and never seeing that money again). However, you will take on some extra risks by opting to own the property rather than rent.

If you're satisfied that a commercial property mortgage is right for your business, you will need to consider a few things before jumping in…

The bank that provides you with business banking services may also be able to offer you a commercial mortgage. You shouldn't dismiss this offer, but it's also important to compare commercial mortgages with other lenders to make sure you're getting the best deal.

A mortgage broker can help you to find and compare the commercial mortgages. 

Decide on the maximum amount per month that your business could commit to paying for the commercial property mortgage.

Be sure to set this maximum at a level you can easily afford. Remember that if you miss repayments, your business' premises could be at risk of repossession.

Many commercial mortgage lenders offer a fixed rate or capped rate option, giving your business some payment security. A capped rate gives you a payment ceiling if rates go up, but also lets you take advantage of rates when they're low.

Commercial property mortgages generally require you to put up a sizeable deposit.

There are several factors that will influence the minimum amount of deposit you will need to provide. These include:

• The commercial property you are looking to buy (a petrol station may require a larger deposit than a farm, for instance).
• The amount the lender thinks that you can afford. If the lender thinks you can't afford the commercial mortgage you are asking for, they may reduce the amount they are willing to lend your business. In effect, this will mean that you will need to provide a larger deposit.

The deposit can range from 20% to 50%, and this can vary between mortgage lenders.

Business mortgage brokers will have good working relationships with many lenders and will know their foibles with regards to criteria, costs and service. They can save you a lot of time, and potentially a lot of money, too.

Make sure you look for an independent business mortgage broker– preferably one that's a member of the National Association of Commercial Finance Brokers (NACFB) – to ensure that you are getting the best advice for you and your business.