Zero-Coupon Mortgage
Candlefocus EditorZero-coupon mortgages can give businesses the time they need to generate the funds needed to pay back the debt once the project nears completion. It should be noted, however, that this type of loan is typically only offered to established businesses with clean credit records. Not only do lenders want assurance that the borrower is a reliable customer, but they will also want to ensure that their investment is a wise one.
Businesses must also consider the fact that when the zero-coupon mortgage is due, they may need to refinance the loan in order to take advantage of any prevailing lower interest rates. The process of refinancing can be costly, so a business will want to ensure that the benefit of a lower interest rate and the costs associated with refinancing (including fees and expenses) are weighed during the decision-making process.
In summary, zero-coupon mortgages are a type of long-term commercial mortgage that can provide businesses with the financing they need when they don’t have the immediate cash flows available to repay the debt. However, lenders consider the borrower’s credit record and businesses should fully consider the cost of refinancing at the end of the term when evaluating the volume of debt on their balance sheet.