Commercial Second Mortgage

One excellent source of financing businesses that own property should consider taking advantage of is a commercial second mortgage.

A second mortgage can be an excellent source of emergency funding for a business. Second mortgages can also be used to pay for expansion or to purchase new inventory and equipment.

One advantage to a second mortgage is that it can be a source of extra financing that doesn’t require investors. Another advantage to a second mortgage is that mortgage costs are often lower than other loan costs.

Equity and Second Mortgages

The amount of a second mortgage is determined by the amount of equity that a business has in its property. Equity is the difference between the value of the property and the principal owed on the mortgage. A business with a property worth $600,000 that was mortgaged for $200,000 would have $400,000 worth of equity available.

This means that some business could have large amounts of credit available they aren’t taking advantage of. Business owners should check the amount of equity they have available to see how much second mortgage financing they can take advantage of.

Drawbacks to Second Mortgages

There are some serious drawbacks to using second mortgages as sources of business financing. The biggest drawback is that the second mortgage will increase future mortgage costs. This means that the business will have less money available in the future because it will have another mortgage payment.

Increasing the amount a property is mortgaged for can also increase the danger of foreclosure. Businesses that take out second mortgages they can’t pay could loose their property to foreclosure.

Taking out a second mortgage now also reduces the amount of equity available to a business in the future. Once the equity is tied up by another mortgage it won’t be available in the future if loans are needed then.

Uses for Second Mortgages

There are many excellent uses for second mortgages in the business world. One of the best uses of a second mortgage is to pay off other kinds of high interest debt. Using a second mortgage to pay off credit card debt or auto loans could reduce a business’s debt load.

Paying off high interest debts could improve a business’s credit score and increase its ability to borrow money. A better credit score can help a business get other kinds of loans and financing.

Another use for second mortgages is to finance business expansion and the purchase of new equipment and inventory. Second mortgages are also an excellent source of emergency financing for businesses.