When it comes to your own home, most people will tell you that, where possible, buying is better than renting. So why would it be any different for your business premises?
Our latest article explains how owning your own commercial premises could be easier than you think.
Why buy?
If you own and run a business, the likelihood is you intend it to be a long-term arrangement, which is why saving money on rent by owning the premises is an attractive opportunity to many.
It can also offer you more security, as you aren’t at the mercy of a landlord raising rent, selling, or wanting to redevelop the property. Relocation of your business also runs the risk of moving away from your primary client base, which can be detrimental to your business’ future. Of course, it does depend on the size and occupation of your trade; however, moving can be a very costly procedure.
How can I raise the money?
There are many ways to secure a deposit for a commercial property purchase. The below list is not exhaustive, but explains some of the more popular ways clients tend to raise necessary funds to purchase their own commercial premises.
A Second Charge Loan
This type of borrowing facility is used to release cash from another equity source. If you were raising funds required for a deposit on a commercial property, it might be possible, for example, to raise it from the equity in your private residence or another investment property.
It can be possible for particularly profitable businesses to borrow 100% of the commercial property purchase price, if backed with suitable supporting security. This is usually arranged with a second legal charge over your own home or a first legal charge over an investment property with good equity.
Cash Flow Loan
Small trading companies often use this type of unsecured business finance to leverage finance based on their cash flow. The idea of these is that, as the company makes money, you can make loan repayments. This type of loan is ideal for companies that do not have sufficient assets to use as security or that don’t have a long credit history. However, they often have higher interest rates to mitigate the lender’s risk.
Another deposit source can be known as a ‘gifted deposit’, where there is no short-term repayment profile. However, it’s worth considering that, if you must repay the family loan, lenders will factor repayments into their debt serviceability calculations. Hence, it’s best to stretch the loan out for a longer period.
Owner-Occupiers
Owner-occupier loans can be made available for both fully commercial or semi-commercial premises where you both live and work on-site.
Semi-commercial property that is also your primary residence tends to be more complicated to underwrite, depending on what proportion of the property is residential. If your home makes up over 40% of the freehold, most lenders will treat this as a regulated commercial mortgage, which can limit the number of lenders available to you. On the other hand, if you’re making the application through your Trading/Limited Company, or the commercial element takes up a large majority, some lenders will deem it an unregulated transaction, and you will therefore have access to many more mortgage products.
How can I make the application?
We have access to lenders who accept applications from Sole Traders, Partnerships, Limited Liability Partnerships (LLP) or Limited Company structures. It’s always best to get advice from your accountant or a tax advisor to determine which is the best structure for the purchase and the pros and cons.
The commercial market now sees both repayment and interest-only mortgage options for ten-to-thirty-year loan terms from both the highstreet banks, and the challenger lenders that may not be accessible to you as the borrower. This is where our specialist commercial broker team can help. With whole-of-market access, we can search the market for the property finance solution that best fits you. If you’re interested in purchasing your own commercial property and would like more information about any of the loan facilities mentioned above and whether there could be an option for you, please do not hesitate to contact us.
For more information on owner-occupier mortgages, including the types of income lenders consider, how to calculate how much you could borrow and more details about the rates available, you may find ourr Basics of Commercial Owner-Occupier Borrowing blog useful.
Get started with commercial property investment
If you’re interested in purchasing your own commercial property and would like more information about any of the loan facilities mentioned above and whether there could be an option for you, please do not hesitate to contact us. Submit an enquiry, or call us on 0345 345 6788.
