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Using a mortgage to finance a small business

By Samantha Garner | May 7, 2016

small business mortgage financingNeed money to buy inventory or fixed assets, or to help your business get through a shortfall of cash? Debt financing is money loaned to you or your business, usually by a commercial bank or credit union, for which the lender has a right to earn interest. In order to get debt capital you may have to secure that debt with other assets.

Today, we’ll look at how you can use a mortgage to finance your small business’ needs.

How to use a mortgage as small business financing

A mortgage is a type of loan that is secured by real estate (real estate mortgage) or movable property (chattel mortgage). A mortgage is a method of using property (real estate or personal property) as collateral for the payment of a debt. The term “mortgage” refers to the legal device used for this purpose, but it’s also commonly used to refer to the debt secured by the mortgage, the mortgage loan.

Arranging a mortgage is the most common way you or your business can buy residential and commercial real estate, or other personal or business assets, without the need to pay the full value right away. With a mortgage, you keep the title to the property, but you’ll need to get the lender’s consent to sell it.

A lien — a formal legal claim or “hold” on the title of the asset secured by the mortgage — will appear on the title until the mortgage loan is repaid and written confirmation has been forwarded to you by the lender. Liens keep the business owner from selling the property or transferring its title before the mortgage is repaid.

If you’re considering purchasing used equipment, vehicles, or real estate property, make sure your lawyer searches the title of the asset for registered liens. If you buy and take title to an asset with a registered lien, the lien and the associated debt become your obligation to repay. Buyer beware!

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