Buying Guide

Commercial Mortgages

Overview

A commercial mortgage is most likely the best way to finance the purchase of land and/or buildings for your business! It probably provides the most flexible and affordable financing solution. A commercial mortgage is a specialized commercial loan (click here to learn more about commercial loans) in which the lender has a legal claim over the property until the loan has fully been repaid. When arranging a mortgage, consider its effects on your cash flow and assets. This section will give you a general overview. It does not replace professional advice. You may wish to consult your accounting and tax advisors before finalising a loan to reap the maximum benefit and avoid complications.

How It Works

Mortgages may be structured several different ways but the two most important aspects to consider are the interest rate (type) and the repayment schedule for the mortgage.

There are two interest rate options for you to consider

• Fixed Rate: With a fixed rate the interest rate (i.e. the percentage) applied to the outstanding principal remains constant through out a predetermined period that may or may not equal the length of your mortgage. The interest rate is set at the beginning of your mortgage by examining the risk involved and the current market rates. The advantage of a fixed rate loan is that your interest rate is fixed and will not rise if the market rate rises. The disadvantage is that you will not benefit from any reduction of the market rate.
• Variable Interest Rate: With a variable interest rate the interest rate applied on the outstanding principal fluctuates from in line with changes to the Bank Base Rate or LIBOR and, as a result, so will the amount of your payments. The interest rate for each period will be the current market rate plus a predetermined premium that remains constant throughout the life of your mortgage. Generally, you can initially get a lower interest rate on variable interest rate than on a fixed rate mortgage. The advantage of an adjustable interest rate mortgage is that you save money when the market rate decreases. The disadvantage is that you are not protected from an increase in the market rate and the interest rate you pay will increase with the market rate.

When deciding on your repayment schedule you should always remember the longer you take to payback the principal the higher your total interest payment will be

• "Equal" Payments: Probably the most common schedule, this type of mortgage requires you to pay the same amount each period (monthly or quarterly) for a specified number of periods. Part of each payment covers the interest and the rest reduces the principal.
• "Equal" Payment and a Final Balloon Payment: This type of mortgage requires you to make equal monthly payments of principal 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 type of mortgage offers definite benefits to you. Because of the lower monthly payments during the course of the mortgage, you can keep more cash available for other needs. Of course, when you are thinking about those nice low payments, don't forget the big balloon payment waiting around the corner.
• Interest-Only Payments and a Final Balloon Payment: With this type of mortgage, your regular payments cover only interest. The principal stays the same. At the end of the mortgage term, you must make a balloon payment to cover the entire principal and any remaining interest. The obvious advantage of this arrangement is the low periodic payments. But over the long term, you will pay more interest because you are not reducing the principal sum on which you pay interest
• Endowment Mortgage: This type of mortgage is similar to an interest-only mortgage but the repayment of the principal comes from the proceeds of an endowment. Several types of endowments are eligible for this type of mortgage, they include: life assurance policy, personal or executive pension plan policy, or a personal equity plan. The additional security provided by the endowment usually result in a lower interest rate.

Advantages

• Retain Ownership. Instead of raising funds by selling an interest in the property or the business to an investor, you retain complete ownership of both. The lender is only entitled to an interest return on its mortgage, not a percentage of ownership that an investor would expect. Also he/she can only exercise the right if you default. You retain all the benefits of ownership in an asset that has the potential to appreciate in value.
• Better Cash Flow. A mortgage gives you access to capital with minimal up-front payments and the flexibility to design a repayment schedule that suits your needs.
• Maximize Financial Leverage. Financing your property purchase with a mortgage will allow you to use your cash flow for other pressing needs.
• Simplified cash flow management. Mortgage schedules are preset, making cash management more predictable.
• Tax advantage. Interest payments on your mortgage are tax deductible and are made with pre-tax money. Purchases financed with profits, in contrast, are, made with after-tax money.

Disadvantages

• Collateral. The nature of a mortgage requires you to pledge the purchased property to the lender. If you default on the mortgage, the lender is able to foreclose upon the property and sell it to repay the money owed to the lender. Make sure that when the mortgage is repaid, the lender is obligated to release its mortgage and is required to make any government filings acknowledging this release.
• Defaults. The lender may define a variety of events that will constitute a default on the mortgage, including failure to make any payment on time, bankruptcy, insolvency and breaches of any obligations in the mortgage documents. Try to negotiate advance written notice of any alleged default, with a reasonable amount of time to cure the default.

Things to Watch out for

• Mortgage fees. The lender may charge up-front loan or processing fees. Check these fees carefully, and try to get an estimate as soon as possible to help you evaluate the mortgage package.
• Prepayment. Ideally, you want to be free to pay off the mortgage (all or in part) at any time before its due date. Unfortunately the majority of lenders are likely to charge a redemption penalty in the first 3 to 5 years of the mortgage. But after that initial period, you should make sure that your mortgage agreement gives you this flexibility and try to avoid a prepayment penalty for paying off the mortgage or part of the mortgage early.
• Grace period. Try to get a grace period for any payments. For example, the monthly payments may come due on the first day of each month, but they won't be deemed late until the fifth day of the month.
• Sale and leaseback. An alternative to mortgaging a property is to enter a sale and leaseback. In this transaction, you would sell the property to a buyer, who would immediately lease the property back to you. In this situation the main advantage is that the buyer would be required to find the financing for the purchase. However you have sold your ownership of the property and you would not share in its appreciation.
• Legal and Professional Fees. Before you finalize your purchase and ownership of the property passes to you, you will incur several closing costs above and beyond the cost of the property and fees arranging for the mortgage. Common expenses to be paid at closing are title insurance, the site survey fee and various fees for preparing the legal documents.

Frequently Asked Questions (FAQs)

Purchasing property is a large decision for any business. There are several advantages and disadvantages that should be considered before making your decision.

Advantages include:

• Fixing your overhead costs. When you finance your purchase with a mortgage you have a repayment schedule that sets your fixed expense each month.
• Potential asset appreciation.
• Potential to sublet. If you purchase more space than your company currently needs, you could sublet a portion of it until you need the space.
• Mortgage payments may be cheaper then rent. When you set your repayment schedule you know what your payments will be in advance. When you rent your property, you are exposed to market conditions that may increase your rent to above what your mortgage payments would have been.

Disadvantage include:

• Harder to relocate. If you have a lease and decide to change locations the process is relatively simple. When you own the property, you need to determine if you should sell the land or find a new tenant.
• Drain on cash. A mortgage will not provide 100% of the financing needed to acquire the property. You will need to use your current cash to finance a down payment and pay for any related expenses.
• More management responsibilities. When you let the property, the landlord is responsible for the upkeep and security of the property.

What is the usual length of a mortgage?

Mortgages are typically available for any time period between 5 to 25 years. For commercial mortgages the maximum length of the mortgage is usually 20 years for newer properties and 15 years for older properties.

How much cash do I need to provide for a down payment?

Typically lenders often view mortgages with larger down payments as more secure. Most lenders typically like to receive 20% to 30% of the purchase price as a down payment. Depending on your company's financial history, as little as 5% of the purchase price may be required for a down payment. (You will most likely have to pay a higher interest rate to compensate for the smaller down payment). You should remember, that the larger your down payment is, the less you have to borrow.

How should the mortgage be structured?

If possible, you should form a separate business entity to lease the building to your operating company. This separate entity should then arrange for a non-recourse mortgage for the purchase of the property. This should protect your operating business if you default on the mortgage. You may wish to consult your accountant or tax advisor.

How can I improve my chances of getting a mortgage?

Be prepared to demonstrate why you have a solid chance of repaying the mortgage. The lien on your property adds security but the lender will still base their decision on your ability to repay the mortgage. It will be extremely beneficial to be able to show the lender a history of your earnings and a projection of future earnings. Also expect the lender to arrange for a property appraiser to estimate the market value of the property; this will help the lender feel that the property is sufficient collateral for the mortgage.

Who is responsible for the repayment of the mortgage?

The legal structure of your company will determine who is responsible for the repayment of the mortgage and who will be liable if it is not repaid. If you are a sole trader, you bear all the responsibility and potential liability. If your have formed a partnership, all of the partners involved are jointly and individually responsible. If you a legal company, the Directors may be liable if the mortgage is not repaid.

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Glossary

Asset - Any item of economic value owned by you or your corporation, especially that which could be converted to cash.

Bank Base Rate - The minimum interest rate that the bank will charge you for your loan.

Collateral - Asset pledged by a borrower to secure mortgage. The asset is subject to seizure in the event of default.

Discount Points - Type of fee that you pay to the lender. One point is equal to one percent of the of the loan amount.

Down Payment - Part of the purchase price that the buyer pays in cash and does not finance with a mortgage.

Endowment - A fund owned by an individual that is to be used for a specific purpose.

Fixed Rate - The interest rate (i.e. the percentage) applied to the outstanding principal remains constant throughout the life of the loan.

Lender - A financial entity that makes funds available to others to borrow.

LIBOR - London Inter-Bank Offer Rate is the interest rate that the largest international banks charge each other for loans.

Lien - A legal claim against an asset that is used to secure a mortgage. To sell the property, the lien must be paid.

Principal - The amount borrowed from the lender.

Outstanding Principal - The amount borrowed from the lender that remains unpaid (this excludes interest outstanding).

Recourse Mortgage - A mortgage for which another company (usually the parent) is responsible for payments if the original borrower defaults on the mortgage.

Repayment Schedule - A listing of the amount of principal and interest, due dates and balance after payment for a given mortgage.

Terms - The specific condition and details of an agreement or contract.

Variable Rate - The interest rate (i.e. the percentage) applied on the outstanding principal amount fluctuates from period to period.

Working Capital - The amount of funds in the business required to finance the day-to-day operations of the business.

Landlord Insurance

Instant landlord insurance quotes in just a few simple steps:

Buy to let insurance overview

Buy to let insurance is a combination of covers packaged together by insurers to provide landlords with the essential components to ensure that their investment is adequately protected.

All types of landlords require insurance for their properties. From the landlord who owns a single small flat, to the entrepreneur who controls a large portfolio of property, the chances are that a significant amount of capital is tied up in the property, and that a certain amount of income is expected. landlord insurance protects you against losing your capital investment, and can also help protect the income stream you receive through your tenants paying rent.

Buy to Let Insurance Cover

The following is a summary of the typical insurance covers which make up a landlords insurance policy.

Property Insurance: The building itself is insured against most risks such as flood and fire for the cost or repair or rebuilding. Even risks such as terrorism or subsidence can normally be purchased as optional extras for added security from most insurers.

It is important to remember that you when you declare the value of your property you are actually estimating the cost of rebuilding it should it be totally destroyed (this is what insurance companies call a total loss). Most insurance companies work out a rate to charge the landlord based on the location of the property and then apply it to the amount specified to rebuild the building (which is called the Buildings Sum Insured). It is therefore cheaper to insure a building that is worth less than an expensive building which is as expected.

It is equally important to make sure that you do not underestimate the cost of rebuilding your property. If you have paid a lower premium by underestimating the Buildings Sum Insured, then the insurer will normally only pay your claims up to the proportion of the building that you have insured. For example: If your house is worth £100,000 but you only declare a Buildings Sum Insured of £60,000; should you have a claim of £10,000 then the insurer will only pay you £6,000 as they will deem that you under-insured. It is important not to be caught out by this by being tempted by lower premiums for lower Buildings Sum Insured.

Contents: For a landlord insurance policy when an insurer talks about insuring contents they are not talking about the tenants contents. Insuring these is the responsibility of the tenants themselves and can be done through a normal home insurance policy. The contents that you can insure are items that you own in the property but which may become damaged such as carpets, sofas, tables, chairs and pictures if you are renting the property as furnished. Many insurers also insure communal contents which will cover contents such as those names above which are situated in communal areas in blocks of flats, or properties with multiple types of tenants.

Landlord Liability: As a landlord you are responsible for the safety of the property that your tenants are living in. This means that should a tenant harm themselves due to something dangerous in the property they can make a claim against you for damages. For example, a tenant may electrocute themselves on a faulty light switch and badly burn their hand as a result. The Landlord Liability cover will pay for any damages that are awarded to the tenant as well as all legal costs.

Frequently Asked Questions:

Why can’t I buy normal home insurance for a buy to let property?
By renting a property out to a tenant, you are effectively operating as a business, even if the income is very small. For this reason you must purchase business insurance, of which Landlord Liability is a subset. As a landlord you have legal responsibilities towards your tenants in a way that you do not have for your own home. A landlord insurance policy covers you for this.

Can I insure my tenant’s contents on my landlord insurance policy?
No. You can only insure your own contents on your landlord insurance policy; your tenants must take out their own insurance should they wish to protect their contents. The reason for this goes back to one of the principal rules of insurance, which is that the entity that is being insured must be owned or directly effect the person who is taking out the insurance contract. If this rule is not strictly adhered to, the insurance contract can develop a moral hazard and end up more like speculation/gambling.

Shop Insurance

Decision Finance offers insurance quotes on over 300 types of shop, retail outlet, public house and restaurant. No matter what you sell, there is a possibility of an accident happening on your premises and having the appropriate insurance cover offers peace of mind if the worst happens.

Your business is vulnerable to claims from both employees and customers, so in addition to making your business premises as safe as possible, the following types of insurance cover offer protection from compensation claims and for damage to your own property.

Employers Liability Insurance
Required by law if you have employees, this type of insurance protects you from claims from staff who have been injured or made ill at work through the fault of your business.

Public Liability Insurance
The nature of your business means that customers will be visiting your premises to shop, and if they happen to have an accident and injure themselves whilst there, you might end up facing a claim if it was your fault.

A customer might, for example, trip on a carelessly discarded box or item that has fallen from an overstocked shelf. If they hurt their back, or put their hand through a glass display resulting in a serious injury, they are likely to try to claim compensation.

Public Liability Insurance covers such claims and usually any legal expenses involved.

Stock Protection
If you hold stock on the premises insurers will generally allow you to choose how much stock to cover and it will be protected against fire, flood and theft etc.

Contents & fittings Insurance
You can cover valuable contents and fittings separately from the building.

Cash Cover
If you store cash on site, this can also be insured against theft. You can even add on theft by an employee.

Why quote and buy with Decision Finance?

• Fast, simple quotation process
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• Full customer support from our contact centre professionals
• Full documentation provided online in seconds
• Tailor your policy to your requirements before purchase
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• Easy renewal process

Business Insurance / Public Liability Insurance

Business insurance is one of those things that many companies view as a necessary pain - but think about all the potential disasters out there facing a business. You need to make sure your company is protected.

Many business owners also don't realise that commercial insurance is a legal obligation - and many don't realise that commercial insurance policies are based on common packages unlike home insurance for example. Our panel of insurance specialists will determine your needs and create a customised policy for you.

Looking for public liability insurance cover can be extremely time consuming and often very frustrating. We aim to make the process of obtaining public liability insurance as simple as possible. We deal with over 20 business insurance specialists who are able to offer comprehensive insurance cover at extremely competitive rates.

Professional indemnity insurance (PI) provides protection for businesses which offer advice or services to third parties (i.e. members of the public or businesses). A typical example of someone who requires professional indemnity insurance is a website designer; if they put incorrect information on a website about their client and subsequently damages their reputation then they could be liable to pay damages. Professional indemnity insurance would protect the designer so that for any damages awarded against him the policy will pay. Professional indemnity could also apply to accountants, graphic designers and information technology consultants.

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Landlord Insuranc

As a landlord there are certain risks which you need to protect yourself against in order to ensure that in the event that there is an accident you will have the adequate insurance in place to rectify the problem. We have teamed up with one of the UK's leading landlord insurance specialists to provide landlords with cover for buildings, contents up to £25,000 and terrorism cover. We are also able to offer instant online quotations even if you have a portfolio of properties.

Get a Landlord Insurance Quotation Now!

Tradesman Insurance

Finding a public liability insurance specialist if you are a tradesman or construction worker can be difficult, even once you found an insurer who will provide you a quotation they may not be able to offer you affordable insurance cover without sacrificing cover. We are able to offer comprehensive business insurance cover for tradesman and construction workers at extremely competitive rates.

Running a shop can be a risky business do not increase that risk by not having the adequate insurance cover to protect your business. Our business insurance specialists do not offer standard off the shelf policies, they realise that each business is different. They build a tailored insurance policy around your business activities to ensure you are fully covered.

Liability insurance is an essential insurance cover for all businesses. It is designed to cover your business so that in the event that a third party claims that as a direct result of your corporations negligence (lack of care) they have suffered physical injuries or death. Public liability insurance can also cover you in the event that during your business activities you damage a third parties property and they subsequently sue your business you will have adequate cover to fully protect your business.

Employers liability insurance is a compulsory insurance cover that all employers must have by law. The cover is designed to protect your business so that in the event that your actions towards employees are seen to be negligent and they subsequently suffer bodily injury or death, you will have the adequate insurance cover to protect your business.

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As soon as you choose the type of insurance that fits you best and fill out a quote request we will work quickly to get you insured. Instant life insurance for smokers is as easy to obtain as it is for non-smokers when utilizing our online system .

The Fundamentals of Life Insurance

The Fundamentals of Life Insurance – A Caring and Smart Financial Decision

Life insurance is unique among financial instruments. It is one of, if not the only financial instrument that is based on caring and love. Even though there can be personal advantages to having life insurance, the real impetus is love for those one cares most about – to make sure they are taken care of. So, applaud yourself for taking the time to learn about this subject (and please follow up with action whether through us or the organization of your choice.)

Interestingly, while one is taking care of the financial needs and wants of a spouse or the next generations, life insurance can also develop and build one’s personal financial goals while living. For example, because you have sufficient life insurance, you might be able to use more of your assets to enjoy life in retirement. Why is that? Because if you know you have sufficient life insurance you won’t feel that you are lowering the inheritance by spending some of your principal. You may actually “pay down principal” to some degree to yourself, especially if you have lifetime permanent life insurance as a backup.

There are various types of life insurance but they all have some common attributes. You pay an insurance company what are called premiums. At your death, the life insurance company pays an amount to the people you named in your policy, called beneficiaries. Also it’s interesting that if you named a beneficiary(ies) they’d receive the insurance amount free of income tax.

Some types of life insurance have cash benefits available while you’re living. In these types, a portion of your premium goes into a cash reserve and builds on a tax deferred basis. You can access this money, called cash value. Some people use it to help education costs, enhance retirement cash flow or for any reason. Two of the most common types of “permanent life insurance” are called whole life insurance and universal life insurance.

The different kinds of life insurance are described on the Lifeinsure.com site. To learn more about each type you can go to the navigation panel you click the type of life insurance to learn about. You can also visit the Education Center. Combined with investments, retirement and estate planning, a life insurance policy is a cornerstone of a sound financial plan. By looking into this area, you are making an intelligent and caring financial decision for your family. It is important that you have life insurance and have enough to protect those you care about. Get the insurance you should have.

Whether you get it from us or not, please take care of this important and caring financial concern.
Another great place to really learn about the subject is The Life Insurance Blog which is full of articles and tips about life insurance and how and where to buy it.

To learn more, click one of the following:

Term Life Policies
Return of premium
Whole Life Policies
Universal Life Policies
Survivorship Life (Joint and Survivor)

To get a quote for life insurance, click one of the following:

Term life Quote
Return of premium Quote
Whole life Quote
Universal life Quote
Survivorship life Quote (Joint and Survivor)

The Fundamentals of Life Insurance – A Caring and Smart Financial Decision

Life insurance is unique among financial instruments. It is one of, if not the only financial instrument that is based on caring and love. Even though there can be personal advantages to having life insurance, the real impetus is love for those one cares most about – to make sure they are taken care of. So, applaud yourself for taking the time to learn about this subject (and please follow up with action whether through us or the organization of your choice.)

Interestingly, while one is taking care of the financial needs and wants of a spouse or the next generations, life insurance can also develop and build one’s personal financial goals while living. For example, because you have sufficient life insurance, you might be able to use more of your assets to enjoy life in retirement. Why is that? Because if you know you have sufficient life insurance you won’t feel that you are lowering the inheritance by spending some of your principal. You may actually “pay down principal” to some degree to yourself, especially if you have lifetime permanent life insurance as a backup.

There are various types of life insurance but they all have some common attributes. You pay an insurance company what are called premiums. At your death, the life insurance company pays an amount to the people you named in your policy, called beneficiaries. Also it’s interesting that if you named a beneficiary(ies) they’d receive the insurance amount free of income tax.

Some types of life insurance have cash benefits available while you’re living. In these types, a portion of your premium goes into a cash reserve and builds on a tax deferred basis. You can access this money, called cash value. Some people use it to help education costs, enhance retirement cash flow or for any reason. Two of the most common types of “permanent life insurance” are called whole life insurance and universal life insurance.

The different kinds of life insurance are described on the Lifeinsure.com site. To learn more about each type you can go to the navigation panel you click the type of life insurance to learn about. You can also visit the Education Center. Combined with investments, retirement and estate planning, a life insurance policy is a cornerstone of a sound financial plan. By looking into this area, you are making an intelligent and caring financial decision for your family. It is important that you have life insurance and have enough to protect those you care about. Get the insurance you should have.

Whether you get it from us or not, please take care of this important and caring financial concern.
Another great place to really learn about the subject is The Life Insurance Blog which is full of articles and tips about life insurance and how and where to buy it.

To learn more, click one of the following:

Term Life Policies
Return of premium
Whole Life Policies
Universal Life Policies
Survivorship Life (Joint and Survivor)

To get a quote for life insurance, click one of the following:

Term life Quote
Return of premium Quote
Whole life Quote
Universal life Quote
Survivorship life Quote (Joint and Survivor)

Life Insurance Direct

Life Insurance Quotes & Information

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Length of Time of Life Insurance Policy

The longer your policy remains in force, the more likely it is that the company will pay a claim, therefore the more expensive it is. That is why whole life insurance policies have the highest premium - it's insurance for your whole life, no matter when you pass on. When you have a whole life policy you have assurance that you will have coverage as long as you live. As long as you pay your premium, the company will guarantee that benefits will be paid to your heirs. That is why a 5 or 10-year term life insurance policy is the least expensive. The company is less likely to pay a claim on that term life policy.

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