Paying less for your premises: A money-saving plan for an opticianPublished on 31st October 2018 2018-10-31T22:41:18+00:00 - Last update on 1st November 2018 2018-11-01T12:28:37+00:00
Premises are a major cost for most businesses - but particularly for dispensing opticians.
While other professionals such as doctors and dentists can practice from walk-up suites, as an optician your practice is also a retail business and, as a retailer, you need premises well-positioned on the high street or retail park in order to bring in passing business. With the increasing presence of franchised chains in the sector, your premises need to be in prime position and ideally close to public transport and, arguably, more importantly, parking.
These are, of course, all factors that push up the desirability and hence cost of prime commercial property.
You’ll need an attention-grabbing shop window, as well as sufficient floor space for consulting rooms, a small workshop and storage and ample display area for frames, which can all add up to a considerable investment.
We recently worked with a practice that was looking for additional premises, and the best way to provide the funding for it.
“We have several branches. We have seen the difference location makes to the business - and we know that it’s worth paying more to get the right location, because it will soon be paying for itself.”
The finance you need for the optician’s premises you desire
Leased premises may be the solution when you are setting up your business, but leasing can be expensive in the long-term. Not only does it leave your practice at risk of rent increases but you are, in effect, wasting money - buying your current premises from a landlord, or finding suitable property nearby could reduce your monthly outgoings and let you build up a valuable asset for the long-term.
“We starting buying property as soon as the business was ready. It means that we have security - there’s no landlord to raise the rent or kick us out.”
As an optician with your own practice, you can expect to find lenders eager to help you raise the finance to buy premises with a Commercial Mortgage. This type of funding works much like a residential mortgage, allowing you to spread the cost of your purchase over 20 years or more, with the loan secured on the property itself. However, there is one key difference. Commercial Property Finance is always arranged on an individual basis. The lender will look at your business, its performance in the past and its prospects for the future before offering rates and terms that reflect your particular circumstances.
These rates can vary widely, which is why many opticians have discovered that the answer is to come to us at Rangewell to find the most competitive rates from the entire lending market.
But what can you do if you have already arranged a Commercial Mortgage, and started to buy the premises you work from?
Commercial Remortgages - the versatile solution
A Commercial Mortgage is a long-term financial arrangement - but there is no reason to remain with the same lender if another is able to offer you a better deal.
Just like residential mortgages, a Commercial Mortgage can be paid off and replaced with a loan from another supplier. This can often mean savings, especially if the property has increased in value, meaning that you have a greater equity in the premises, and so need to borrow a smaller proportion of its cost, known as a more favourable Loan to Value, or LTV.
We saw that our optician client might be able to remortgage their properties, and make a considerable saving as a result.
“We’re a company with eight directors, and we operate five branches in a group of towns around the East of England. We are looking to acquire a sixth branch, and were reviewing our existing commitments.
We realised that some of our current arrangements had been in place for years - and that they had been arranged on a piecemeal basis. We had Commercial Mortgages on some of our properties, and some other loans which had been used for equipment, refurbishment and to set up our last new branch.
We wanted to see if we could cut our repayment commitments while bringing in more funds to help us grow the business.”
“Our ideal position would be to cut our monthly loan and mortgage repayments - and pay for our new premises without increasing our outgoings.”
We worked with the directors to understand their plans - and their existing commitments.
The new property would cost in the region of £200,000, and current mortgages and loans totalled approximately £800,000.
We saw that the existing properties had increased in value since they were bought between five and ten years ago, and that the business itself had grown. This would provide grounds for reducing the LTV, and hence the interest rate required - despite the fact the total to be borrowed would actually now be higher.
We also looked at the existing commitments of the directors.
We approached a number of banks and found that it would be possible to remortgage the existing properties, paying off loans and providing additional cash to buy the new branch.
The total loan would be of around £1,000,000. This could be provided at a rate of 2.5% above base rate, offering the client a small reduction in monthly repayments whilst providing the necessary funding to acquire the new premises.
It also meant having one single monthly payment to make rather than several, simplifying the financial affairs of the business.
“We are able to press ahead with our growth plans without putting the existing business under stress. Using our existing property as a source of funds for buying the next branch has been complicated - but very worthwhile.”
If you want to look at refinancing for your optician business, contact us now.
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