Buying your own business premises can provide you with great opportunities to grow your business – but it can also present you numerous challenges. When you decide the time is right to invest in property, you’ll need to ask yourself a number of questions.
Return to growth
The UK commercial property market was hit hard by the credit crunch, but is now showing signs of recovery, according to a survey published by the Royal Institution of Chartered Surveyors (RICS) in February 2011.
The survey found that 18% more surveyors questioned in the last three months of 2010 expected new sales and lettings to increase over the next three months – the most optimistic outlook since the first quarter of 2007.
Pros and cons
Buying a property has a number of advantages, including the freedom to use the building as you wish (subject to planning regulations or any conditions imposed by the bank). You will also have more flexibility over the management or repair of the building — and you stand to make a profit if it has increased in value when you sell it.
But buying a commercial property won’t be right for all businesses. For example, it will tie up a lot of your capital, which could be used to set up and invest in your business.
Before buying a property do your homework.
Work out what type of premises you require (a shop, an office, or factory etc). Then consider how much space you’ll need for each business activity.
Getting the right location for your business is vital. Consider whether you need to attract passing trade, be close to suppliers or customers, and have good links to public transport.
Commercial mortgages are used to buy business premises or an actual business itself.
Lenders generally require a deposit of around 20-30% for commercial loans spread over terms ranging from one month to 40 years, according to Moneyfacts.co.uk a financial comparison website.
Obtaining a commercial mortgage is based on a business’s ability to repay the loan. Lenders typically look at the past performance of a business, as well as its current trading and long-term plans. These factors will determine the interest rate you’ll pay on the mortgage. However, business loan rates vary, so shop around and get expert financial advice.
When buying a commercial property you should budget for various administrative costs. Costs will normally include a survey of the property to check that it’s in a good condition; fees for the surveyor and solicitor and any other professional advisor you have employed (who can check thinks like title deeds and enquiries with the local authority). You should also factor in for any alterations you want to make to the property before moving in.
Also bear in mind ongoing costs like business rates, which are based on the rentable value of the property at a given date. You can get more information about business rates at the Valuation Office.
After your offer for a property has been accepted and contracts have been exchanged you’ll need to pay Stamp Duty Land Tax (for commercial property worth more than £150,000 to £250,000 the tax rate is 1%; over £250,000 to £500,000, 3%; over £500,000, 4%). You’ll need to register your ownership with the Land Registry and check whether you need to register your premises for health and safety.
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