Buying or renting your commercial premises can be a tough decision, especially if you are a relatively small business. But what is the right choice for you?
When you business is new and expanding, the likelihood is that you may need to relocate in the future, especially if your business grows quickly, or if you gather the funds to move to a more sought after location.
When To Rent: As a new business you'll probably not have the funding available for a commercial mortgage, as deposit payments of between 25 to 50 percent can be required. It's a totally different ball game to residential property mortgages because it's riskier for the lender. Although it's a long term investment, you need a big sum up front in the first place, which isn't easy for a business that is very young and still building their assets.
Fixing your property expenses so you know what is required monthly is another advantage of taking out a commercial loan to buy your business property. Removing the risks of rent variation can help with budgeting and help keep control over probably one of your company's biggest costs. Interest payments on a commercial mortgage are classified as a legitimate business expense.
By renting, you can be far more adaptable as a business too - so for instance if you suddenly boom overnight and need to get a bigger office or factory, you can do so much quicker and easier than if you had a mortgage. Selling old premises and buying new ones is a lengthy process and means that you are far more 'tied in' than if you are simply renting when you can usually give 2-4 weeks notice and get on with the move.
Buying Commercial Property and Commercial Mortgages: Buying a commercial property has the advantage that every mortgage payment means that the company owns more and more of the property, rather than it being dead money if you are renting. Property is an excellent investment as the value increases, this increasing the business asset value. Mortgage payment can often be lower than rental costs too if you can get a good interest rate.
Mortgage payments made for commercial property by a business are also allowed as an expense for tax purposes so you can actually get some money back and/or pay less tax, which of course is always a plus. For company directors, you can often also buy a property through certain pension plans, although it would be best to speak to a financial adviser before making such a decision as the process can be complicated and carries certain risks.
Renting provides a more flexible option should your business need to move, expand or contract. Businesses that suddenly need to expand or contract can find it easier to do so if their premises are rented than if owned. In summary relocating is much easier to manage if you rent premises than own them.
The only downside is that commercial mortgages often require a large deposit, but if the capital is there that won't be a problem. Depending on your company's situation and the building being purchased, the deposit can be up to 50% of the property value. You'll also need to be quite sure that you will be happy where you are as the costs of relocating will be very high compared with those of moving from one rented property to another.
Deciding to rent your business premises or to buy with a commercial mortgage will depend very much on the specific needs of your business. Taking into account the above points will help you come to the right decision for your business.
