Commercial Mortgages – Cash Flow Friendly
Business often think of cashflow when it comes to invoicing and looking at what is in the bank, they also look at the terms they get from suppliers and those they offer to clients.
The cashflow item they often miss is when borrowing.
Take a standard commercial mortgage. It is pretty common for the borrower to look at fixed rates to insulate against rising interest rates, they also look at the term to ensure the monthly outgoing is affordable.
Affordable, based on the variables as they exist now.
How do you make a commercial mortgage more cash flow friendly?
Let’s dispel one myth to start with. Interest only borrowing means only the interest is being paid, therefore the balance borrowed at the outset remains the same when the loan matures. Or, does it?
Interest only borrowing is great as it keeps the monthly outgoing to a minimum and works well for cashflow. The downside is that the borrower is reliant on appreciation in property prices and the loan capital is never actually repaid.
So how about borrowing interest only to keep the costs down and working well for cash flow, then making reductions to the loan as you go along?
Best of Both Worlds
Most interest only commercial mortgages include an allowance to overpay by circa 10% per annum. This means you are only obliged to make the interest payments, meaning cash flow is protected as best you can, plus when you have a surplus you can reduce the capital. Think of setting the capital reductions aside, then using them to reduce the loan balance when it is safe to do so, otherwise keep the cash aside and be better capitalised.
Commercial mortgage borrowing with cash flow at the front of mind.
If you are looking at commercial mortgage borrowing and want to know the best options for you then get in touch.
By Dave Farmer