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? Commercial Mortgage Consultant, Andy Elley, explains how it could be easier than you might think to own your own commercial property.
If you own and run a business, likelihood is you intend it to be a long-term arrangement. Why would you not want to save money on rent, by owning your own premises?
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. I know of an engineering company that was forced to relocate by his landlord; just moving the machinery cost him £12,000! Relocation also runs the risk of having to move away from your primary client base, which can have a considerable detrimental effect on your business going forward. 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 we have helped people raise necessary funds to purchase their own commercial premises.
Cash Flow Loan: this is a type of unsecured business finance, often used by small trading companies to leverage finance based on their cashflow. The idea of these is that as the company makes money, you are able to make the 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 rates of interest to mitigate the lender’s risk.
Second Charges: 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 to raise it from the equity in your private residence or another investment property.
For particularly profitable businesses, it can be possible 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 house or first legal charge over an investment property.
Owner-occupier loans can be made available for both fully commercial premises or semi-commercial premises where you both live and work.
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 mortgage, which can limit the number available to you. On the other hand, if you’re making the application through your Trading/Limited Company, some lenders will deem it an unregulated transaction. You can read a fantastic example of this in a recent case study, featuring a client who purchased a primary residence including outbuildings that he planned to use for his well-established instrument import and refurbishment company.
Properties which are 50% retail or office and 50% residential (i.e. shops or offices with a flat above) are not regulated transactions, making them relatively straight forward to finance as long as the trading business supports the mortgage repayments.
Hybrid Occupier/Investment loans
With the recent struggles of the high street, some established commercial landlords have sold up, allowing their tenants to purchase the properties themselves. I recently had a client who, when the landlord put the freehold up for sale, was keen to secure his business’ future... but the property was occupied by him and another four tenants. The client wanted to purchase the property and take over as the landlord for the other tenants, providing him with an extra income stream. Based on eight years of good profits and the rental income from four other tenants within the property, I was able to secure him a competitive 80% LTV owner-occupier mortgage.
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 find out which is the best structure for you (if you have an option).
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 me, Andy Elley on 01732 471644 or email me firstname.lastname@example.org.
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