Open Mortgage vs. Closed Mortgage

In the Salvadoran corporate environment, decisions related to obtaining financing are crucial for ensuring the sustainability and growth of any business. Among the most commonly used mechanisms to support credit obligations are mortgages, which can be classified as open or closed. Below, we explain the difference between both modalities, which becomes essential for selecting the option that best fits the financial needs of your business.

Closed Mortgage: Solution for Specific Commitments

The closed mortgage is one of the most common options and is characterized by guaranteeing a clearly defined and determined obligation from the outset of the agreement. This option is frequently requested by financial institutions in operations where the purpose of the financing is limited; however, this guarantee can be requested by any individual or legal entity to ensure compliance with obligations. Additionally, it is noteworthy that the closed mortgage is an accessory contract, which depends on prior commitments and obligations that it guarantees. For entrepreneurs, the closed mortgage is an effective tool when there is a need to obtain credit for specific purposes, providing clarity to both the debtor and the creditor regarding the terms of the agreement.

Open Mortgage: Flexibility for Changing Financial Needs

On the other hand, the open mortgage offers greater flexibility, being particularly useful in scenarios where the business anticipates the need for additional or recurring financing. Unlike the closed mortgage, only credit institutions and commercial companies engaged in such operations can request this type of guarantee. The open mortgage allows the guarantee to support variable or future obligations owed by the mortgagor to the mortgagee, for a specified period, without the need to formalize new contracts. Financial institutions often suggest the open mortgage to companies that foresee the need for continuous access to financing, whether for working capital, operational expansion, or cash flow adjustments. The main advantage lies in that the entrepreneur can obtain future financing without the need to renegotiate the original mortgage, facilitating access to new resources under the same terms of guarantee.

Which is the Best Option for Your Company? Make a Strategic Choice Based on Your Business Needs

• If your company is focused on obtaining financing for a specific project, such as the purchase of property or the acquisition of machinery, the closed mortgage is the most suitable option, as it provides security and stability by clearly defining the obligation.
• Conversely, if your company requires greater flexibility and anticipates the need to seek new financing in the future, and has access to credit lines with financial institutions, the open mortgage will allow you to adapt to market fluctuations without the need to continuously renegotiate new guarantees.

Both mortgage options serve essential functions in the financial structure of a business, but the choice between an open or closed mortgage should be based on the specific characteristics of financing needs and the type of activity the business engages in.