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Why buying premises can make sense for a business

Many of us have aspirations of becoming the next big success in the world of business - or, at the very least, living the lavish lifestyles of the rich and famous we read about so regularly.
The big question though is how do you get there? How do you give your business the nudge it needs to allow you to blossom into the next Branson or Roddick? A great step in the right direction is owning your business premises.

A recent survey* found that while 40% of UK firms between six and ten years old still lease their premises, 70% believe ownership would further spur their business growth.

So why would you want to buy your own business premises?
You can use a commercial mortgage for a number of purposes, such as:

Buy your own business premises
Expansion of your business
If you want to start investing in commercial property – for instance, renting out offices to other businesses
If you’re interested in getting into property development

The most common reason though is at the top of the list - enabling people to buy their own premises.

The advantages of buying your business premises include:

The mortgage repayment is likely to be similar to the rent on the same property
There are no unexpected rent rises
There’s often the option to sub-let
Interest payments on a commercial mortgage are tax-deductible
Simplified cash flow management
Any gain in value will increase capital

Would you be suitable for a commercial mortgage?
People who are suited to getting a commercial mortgage to buy their own premises typically share some or all of the following characteristics:

Your business is typically at least five years old
You can prove you know your market inside out
You got some trading security, for instance evidence of a steady stream of work
You’ve got strong, experienced management – this could just be yourself, or if you run a larger company it would be yourself and your senior team.

Get a commerical mortgage quote.

Currently in the UK, the economic climate is right to consider a commercial mortgage. The rental market is rising, interest rates are stable, and in most sectors, businesses are doing well. Get a commercial mortgage quote

How are commercial mortgages different?
The commercial mortgage market is more complex than basic residential mortgages. However the market is getting to be as competitive as residential and buy to let.
Information about commercial mortgages can be scarce, choices are limited and the process isn’t as straightforward as a domestic mortgage. Therefore, your bank or your financial advisor needs to explain the differences and limitations of a commercial mortgage to you, such as what the higher fees involves and loan-to-property values.

Commercial mortgages can vary depending on you industry sector and the quality of the business. In general, however, for small or medium-sized loans, a maximum loan to value of around 75% is the norm – with up to 80% available for high quality propositions.

All loans are specific to the individual business however to secure the loan, you’ll probably need to meet the following criteria:

The property is deemed to be in reasonable condition for its use
The debt is serviceable by the company
The property is in a viable location
There is a freehold agreement or reasonable lease term

What kind of terms would I get with a commercial mortgage?
As with a domestic mortgage, the length of a commercial mortgage loan period tends to be a maximum of 25 years.

Typically there will be a lenders fee of between 1% and 1.7% charged by mainstream banks for the prime lending, and as much as 4% or higher if in the sub-prime sector; and commercial valuations are more expensive than residential.

There are also higher legal costs from both the borrower’s and lender’s solicitor.
Get a commercial mortgage quote

What you need to think through

Do you have the right level of deposit available?
You need to be comfortable with committing yourself and your business to one location
As with the mortgage on you home interest rate changes can affect the monthly payments. Make sure you can withstand any changes.
You’ll stop having a landlord to fallback on so be prepared to take care of the maintenance, fixtures and fittings, decoration and security yourself.
As with all investments the value can go down as well as up so again you need to be comfortable with all potential future outcomes.
Before taking the plunge, a business should be happy with this environment, certain that sales can sustain the new mortgage and confident that the costs of the mortgage will remain stable.

Do I need to get any paperwork together?
You can talk with your bank or financial advisor today about a commercial mortgage but if you want to be one step ahead you can get your documentation together ahead of time.