A business loan is a loan type specifically for businesses. Commercial finance is commonly used for business improvements such as renovations, overcoming financial hurdles, working capital, or purchasing new equipment or stock.
Pros of Commercial Finance:
- Help scale and grow businesses.
- Flexibility with spending
- Help relieve business debt, such as VAT & Tax loans.
- Low-interest rates
- Doesn’t affect your personal credit score.
Cons of Commercial Finance:
- May be harder to be approved if new business, especially if you have under 2 years of trading.
- If you opt for a secured loan, assets may be at risk.
- Not suitable if a company has ongoing expenses.
Will a business loan affect my mortgage?
Generally, a business loan shouldn’t affect your chances of getting a mortgage. However, this could vary depending on multiple factors such as the structure of your business. if your company is a limited company meaning the business is separate from its owners and has its own legal identity (allowing it to enter contracts, be a responsible owner of assets, and accumulate debt) the business will be liable for its own debts, not the owners. A sole proprietorship (sole trader ship) can tie you personally responsible for the debts of the business as there is no legal distinction between yourself and the company, you wouldn’t be eligible for a commercial mortgage as a sole proprietor.
To increase your chances of being approved for a mortgage, it is recommended as a business owner (shareholder) to keep your personal finances and business finances separate to prevent an impact to your credit in the long run. When applying for a commercial mortgage you could potentially be asked to prove that business profits meet the needs of other life expenses. For example, other home expenses, car payments, or bills this is to prove to the mortgage company you would be able to afford to pay your mortgage payments. In addition, missed business loan repayments can impact you negatively and decrease your chances of being approved if you were asked to show your business credit history upon application. Therefore, ensuring payments are made on time and your credit score is good will improve your chances of being approved for a mortgage.
What is a commercial mortgage?
A commercial mortgage was created to help business owners purchase property or land for the use of their business. For example, if a business wishes to expand and purchase a larger office or, if you are a landlord who purchases property to rent out for an extra source of income. Typically, due to an increased risk to the lender, the interest rates are usually higher for a commercial mortgage compared to the average mortgage. The length of time of the mortgage averages up to 25 years although some lenders may allow up to 30 years for mortgage repayment.
FAQS
How to obtain a business loan?
- Planning is key when obtaining a business loan, before applying you must consider several factors. Such as checking your credit report (the better the report the higher chances of approval) ensuring no payments are due, checking your accounts are in order, and then creating a plan to show the lenders for the use of the loan when doing so you should consider timeframe and the amount you plan to borrow.
Is a business loan a good idea?
- A business loan can be a good idea if used wisely. If your business is struggling with financial hurdles a loan can be beneficial to relieve debt. In addition, long term if you wish to grow your business in more areas a loan can be helpful to cover the costs.
Are business loans tax deductible?
- Not necessarily, the interest accumulated from the loan can be as usually this is considered a business expense so is therefore tax deductible. However, the repayments are not. This is because it is a cash flow item, and this cannot be considered deductible like the interest.
How can I separate my business and personal finances?
In order to not affect your personal credit score keeping your business and personal finances separate is important. There are many ways this can be done. For example, taking out a business credit card, when paying bills or purchases never use your personal account, when applying for credit don’t enter your name use the business details, and most important create separate accounts for your business and personal accounts.…