By Gary Hemming – ABC Finance Ltd
The decision to purchase your business premises is undoubtedly a big one. It’s a fundamental decision in the running of your business and is a long-term commitment.
Of course, there are both advantages and disadvantages of taking the plunge. In this guide, I will break these down, along with how finance works and the key considerations before you buy.
What are the advantages of buying your business premises?
- Commercial property prices tend to increase in the long-term, meaning you’re likely to profit on the sale of the property.
- Interest rates are currently very low, meaning your monthly costs may well be lower than what rent on a similar property would be.
- Should you take your mortgage on a capital repayment basis, you will eventually pay off your mortgage over its term.
- You have a greater degree of control over the property, meaning massive flexibility on any changes to the property going forward.
- You reduce the risk of being exposed to rising rental payments year on year.
Are there any disadvantages?
- Owning a property can be less flexible than renting due to the costs of acquisition and sale.
- The upfront costs of buying are far higher than renting, which can have a significant effect on cash flow unless you have sufficient reserves.
- The commercial property market is less liquid than the residential market, meaning you may not be able to sell quickly should you need to.
- Commercial property prices can be more volatile than residential property, however, they do tend to increase in the long-term.
How do commercial mortgages work?
Commercial mortgages (https://abcfinance.co.uk/) work in a very similar way to their residential counterparts. They are generally issued over a long term, (often 20-25 years) and are repaid through monthly payments.
The maximum loan is generally 75% of the property value, with the remainder being paid as a deposit.
The lender will assess the suitability of the loan by checking both your business and personal credit history, as well as the affordability of the repayments. They will do this by checking your bank statements and accounts, which you will be expected to send to them.
Once they are satisfied with the application, they instruct a survey report at your expense to check that the property is suitable security for the loan.
Finally, solicitors will be instructed to ensure the loan is completed legally and there are no issues with the property. Once this is complete, you are then able to complete your purchase.
What other costs will I incur?
In addition to the deposit, you will also be expected to pay the survey and legal fees, plus any arrangement fees associated with your chosen product.
The other major cost is stamp duty, which will depend on the type and value of the property that you plan to buy.
What are the key considerations?
Before getting started, it’s important that you cover off the following:
- Do the benefits outweigh the cons of tying up so much money upfront?
- How will buying affect your business from a tax perspective?
- Should you choose to buy, would it be best to buy personally, in your company name, or through a new company (which can then let to your existing business). It’s best to discuss this with your accountant as it can have substantial tax implications.
- How long are you planning to stay in the property? If it’s a fairly short time, then the upfront costs may not be economically viable.
- Will the property in question still be a good fit for your business based on your future business plans?
Of course, there are other things to consider and each business will be different. It is important that you find an expert in the local commercial property market, commercial mortgages, property tax and commercial conveyancing. By talking with the right experts, you’ll be able to ensure you’re as informed as possible before proceeding.
