Buying premises for your business
In many industries, having access to a physical trading address can be advantageous, meaning your goods and services are within easy reach of your customers. But if you’re currently renting, you may be thinking about moving into a premise that you own outright. However, the cost of property in the UK could be standing in the way of this goal. Although it can be tempting to abandon your plans, there are funding opportunities available that could help you purchase property for your business. So if you’re thinking about buying business premises, here’s what you need to know.
Why should I buy my own permanent trading address?
Despite the cost of commercial property, deciding to buy your own permanent trading address can offer many advantages. As well as enabling you to reach out to the heart of your local community, operating in a premise that you own outright gives you greater flexibility and control of your brand, income and monthly expenses.
- Brand: By owning your own premises, you have the opportunity to reinforce your business’ image, demonstrating your ambition.
- Flexibility: As the owner of your premises, you’re free to adjust, extend and refurbish the property in whatever way that suits your business’ needs, without having to worry about first getting permission from a landlord.
- Income: If you have any areas of the property that you’re not using, you can turn this to your advantage by subletting in order to generate an income.
- Expenses: Unlike monthly rental payments which can fluctuate, owning your own business premises means that you only need to concern yourself with paying maintenance, council tax, utility bills and insurance premiums, which can be fairly consistent.
What should I consider before buying business premises?
Purchasing a permanent trading address is a major decision that shouldn’t be undertaken lightly. Like any investment, you want to make sure that it’s secure, structurally sound, has the potential to generate a sufficient return and will enrich the capabilities of your day-to-day operations. So when considering any potential property, some of the factors you need to consider may involve:
- Structural integrity: Before buying, check the property’s condition. Is there any damp? Are there cracks or signs of subsidence? Although it’s an additional expense, hiring a qualified RICS surveyor can help you make an informed decision and avoid taking on someone else’s problems.
- Proximity to your customers: You also need to think about how accessible your premises is for both customers and staff. Although you’ll, naturally, want to be situated in a prime location, such as your local high street, these properties can be very expensive. Therefore, you must think carefully and find a suitable balance.
- The locality of your competitors: Although you’re bound to run into competition, placing your business in an area that’s oversaturated can negatively affect your cash flow.
- Environmental concerns: In addition, are there any environmental factors that could scupper your business’ day-to-day operations, for example, does the property sit on a flood plain or are there any social or economic issues you should be aware of?
What Property Finance solutions are available?
If you’ve found a commercial property that has the potential to benefit your business’ operations and ability to compete, the amount of capital that’s required could still be more than you can handle alone. Yet, even if you do have the good fortune to possess that much capital, can you really afford to spend that much without affecting other aspects of your business? This why a growing number of business owners are choosing to pursue their goals with the aid of Property Finance, which offers you access to products such as Commercial Mortgages and Bridging Loans. Alternatively, you may already be working from somewhere and want to gain ownership. In this case, Premises Finance may be a good solution for you.
Commercial Mortgages are long-term finance solutions that can be arranged on a term lasting up to 20 years. During this time, you’ll be required to make Fixed Monthly Repayments, plus interest. However, the amount of interest you could pay may vary depending on whether you’re using a Fixed or Variable Rate agreement. Plus, being secured, lenders will often use the property that you’re buying as collateral. In order to qualify, you must also place a portion of your own capital into the agreement - subject to negotiation, this typically starts at around 20%, however, offering up to 40% could earn you a more favourable agreement and reduce the amount of capital that you’ll ultimately need to borrow. Because funding is based on the value of the property, Commercial Mortgages have no maximum credit limits other than what the lender is able or willing to provide.
On the other hand, Bridging Loans are secured, short-term agreements that can be arranged in little as 48 hours (depending on the complexity of the request) and terms can last up to 12 months. What makes Bridging Loans different from other forms of lending is how the Principal (capital borrowed) and the Interest on the agreement is managed. So to begin, you first need to decide whether to how you’re going to handle the principle, which depends on whether you’re choosing to use a Closed or Open Bridge product.
- Open Bridge: With an Open Bridge you aren’t required to fully repay the loan by a specific date. However, you are expected to completely repay the product within the prescribed term or period.
- Closed Bridge: If you choose a Closed Bridge, you will be expected to fully repay the loan by a set date.
Once you’ve overcome this hurdle, you now need to decide on how you’re going to resolve the interest. Note that Bridging Loans typically carry a high rate of interest which can range from 0.7 - 1.5% Per Month, but can be higher still depending on individual circumstances and the complexity of the agreement. Nevertheless, you have 3 repayment options available:
Monthly Interest Payments: Using this option, you will be required to make interest payments at the end of each month until the principal on the loan has been fully repaid.
Rolled-Up Interest: Here, the total amount of accumulated interest is combined with the total amount of money that you have borrowed. With this option, when you’re due to settle the loan, both interest and the principal is repaid in a single final payment. Note that this will increase the size of the final payment, so you need to be certain that your business can afford this option.
Retained Interest: With this option you are, in fact, borrowing the interest that would be accumulated for an agreed number of months on top of the money that you are already requesting. The amount of interest that you’re borrowing is then retained by the lender, but is designed to offer you a safety net as you make monthly interest payments until the loan’s principal has been fully repaid. If you haven’t used up all of the interest that was retained, or you’ve managed to fully repay the loan early, lenders may reimburse a portion of the retained interest that wasn’t used.
Purchasing a commercial property for your business?
Property in the UK is often very expensive and continues to increase in value. Yet, although this makes stepping on the property a difficult ambition to achieve, it’s not impossible. By applying for Property Finance you could gain access to the funds you need to take the next step in your business development. All you need to do is source an agreement from a lender you can trust. But with so many choose from, how can you be sure that you’re making an informed decision for your business?
At Rangewell, we’re an Access to Finance specialist who have mapped over 400 lenders to offer you a complete overview of more than 23,000 business finance products. Our services are always free to use for business owners and we’ll also guide you through the application process. We’re with you every step of the way. So if you’re looking to invest in your business’ future, apply for Property Finance today or find out more with Rangewell.