What kind of insurance do you need for a commercial mortgage in Australia?

Good insurance can save a life. They are in the business of ensuring that a person’s property is protected, and even in the case of loss, it can be found or replaced (with applied terms and conditions). There are different reasons a person/ or a business would require insurance. In this case, we would discuss what kind of insurance a business would need for a commercial mortgage in Australia and why. Keep reading to learn more.

What is a commercial mortgage?

Let’s begin with the definition of a commercial mortgage. Just as a mortgage is an amount of money that is borrowed to buy a property (and is paid back for years). Or the process of giving another person, business, or entity a claim over a property that you own (in exchange for money that, again, you would pay back). A commercial mortgage is mainly for businesses. It is why it can also be called a business mortgage. They are the ways to getting a business loan (medium or long-term). These loans are used to either redevelop, refinance, or acquire a commercial property. Examples of commercial properties include an apartment complex, industrial warehouse, shopping center, or office building. It can also be money liquidated from a commercial property to fund another commercial property (both owned by you). 

A commercial mortgage is slightly similar to collecting a business loan, such that the things that are discussed would include the amount to be loaned, the maturity (also referred to as the interest rate term), the prepayment flexibility, and the amortization schedule. Different people could offer these services in Australia, such as banks, asset-backed trust companies, enterprises and agencies sponsored by the Australian government, or insurance companies. 

In summary, it involves commercial property and the borrowing of money to fund its expenses. 

Who can get a commercial mortgage?

Though there are so many types of commercial mortgages, only a restricted set of people can get a commercial mortgage (because they are the ones that usually need them). These people are small businesses/companies. Some people call commercial mortgage business mortgage loans because, as described in the previous section, it is very similar to collecting a loan. 

Therefore, commercial mortgages are for small businesses that cannot afford to raise the whole capital required for their property-related expenses. Therefore, they opt for various types of commercial loans to finance expansion plans or reduce the costs.

The criteria for qualification of a commercial mortgage include the following:

1. Ability to pay 20% to 30% of the full loaned amount with evidence.
2. Have a business (be a business owner).
3. The business or person must have a valued commercial property for a minimum of 2 years.
4. Should have some specific amount saved in the bank.
5. The business or person must provide proof or evidence of income earned. Though this can be from salaries or rent, high priority is placed on the income gotten from the business’ profit. 

What types of insurance do you need for commercial mortgages in Australia?

As mentioned earlier, insurance places protection on your property and assures you a guarantee to assist in the case of unforeseen loss or damage. For commercial mortgages, some businesses acquire different types of insurance to ensure the new property to be rented or bought. 

The types of commercial insurances for commercial mortgages in Australia are debris removal insurance, machinery insurance, property insurance, builder’s risk insurance, and so on. The types are further discussed below:

Business Interruption Insurance

This type of insurance covers lost income and expenses that might have resulted from the property damage or loss. For example, if, for a reason, the business has to close its doors temporarily, this would cost the company some expenses, including tax, rent, and so on. This insurance assists to ensure that the business recovers from this.

Debris Removal Insurance

This is the insurance that is acquired to cover the cost of removing debris after an accident. The accident could be a natural disaster (such as flood, or fire), or could be man-made. 

Machinery Insurance

This is more related to the equipment used in the business. This insurance would cover the expenses to replace pieces of machinery that were affected in an accident. 

Crime Insurance

This simply covers the cost of burglary, securities, fixtures, theft, money robbery, etc. This does not include the loss of the building from extreme cases. 

Inland Marine Insurance

This type of insurance covers customers’ properties that were caught in transit during the accident in your business. For example, if there was a fire outbreak in your company, and a client’s car got affected, this insurance type would cover the replacement of the client’s car.

Property Insurance

This is the insurance that covers the cost during the situation that the commercial property is lost. Unlike the debris removal insurance, only the cost of rebuilding is covered, the debris remains. 

Builder’s Risk Insurance

This is the insurance that covers the risk of building the commercial property after it has been acquired through the commercial mortgage. During construction, accidents could happen, so this type of insurance helps to cover the cost for this event. It is different from property insurance because property insurance covers a completed building. 

Workers’ Compensation Insurance

This is the insurance that covers the cost of an employee’s accident on the job. In simpler terms, from any accident or injury that is inflicted on a worker while on the job, this insurance covers the cost. 

Glass Insurance

Glass Insurance covers the broken glass parts of the building during property damage. 

Why might you need insurance for a commercial mortgage?

What is the gain if you get a commercial mortgage loan for a business and due to unexpected accidents, you lose it a few years later (or even a few weeks after)? The same reason a person acquires life or property insurance is the reason a person acquires insurance for a commercial mortgage. It ensures that your property is protected from its construction phase to the working stage. 

Though a business doesn’t have to acquire all the types listed above, however, getting a few of these types would put the business owner at peace for when these accidents do occur.

Conclusion

Businesses at one point or another would need help when taking a huge financial step like purchasing a new commercial property or funding a property expense. That’s where commercial mortgages come in. There are certain criteria to meet but after or during the acquisition of a commercial mortgage, it is best to insure the property. You can pick from one of the types listed above for your acquired property, but make sure you get this from a trusted source in Australia.