Commercial Property Loan

Why A Longer Amortization Is Best For Your Commercial Property Loan

Real estate costs are the third largest business expense, behind payroll and taxes. With longer loan amortizations, your monthly mortgage payments are likely to be less than what you would pay to rent. In other words, owning your own commercial property instead of leasing may actually be more affordable (not to mention extremely beneficial), depending on current market conditions.

Longer amortizations (over 20 years) will have less of an impact on your cash flow (and will often improve it). A good commercial lender will be able to run an extensive analysis and give you a clear understanding of your options and the variables, including monthly rental costs vs. monthly loan payments and the benefits of each.

Growing businesses need to stretch debt repayment terms as much as possible, since it will allow you to invest excess capital toward more growth. Choosing a longer amortization for your commercial real estate loan is an extremely smart decision when you are able to get a low, long-term fixed interest rate. The key is to invest your valuable capital where it will do the most good for your business (usually not your commercial property). Another thing to keep in mind is that many commercial loans give you the flexibility to prepay (for instance, up to 20% of your outstanding principal each year) when you do have excess capital.

NOTE: Be wary of banks — they have the tendency to promote certain products that generate higher “yields” for them. The loan a bank offers you may be a large revenue producer for them but a poor decision for you. You don’t want to be the square peg being forced into a round hole. .