THE PROS & CONS: COMMERCIAL MORTGAGES
Similar to buying a house, business premises can be purchased using a long-term loan over a period of 10/15/20 years and secured by the property that you are buying. Banks ‘normally’ expect businesses to contribute a deposit of circa 20/25% of the total cost.
Interest rates are relatively low, but you will be paying interest for many years. Other one-off up-front costs will include an arrangement/set-up fee and a valuation fee. There will also be legal costs, possibly stamp duty, and VAT* depending on the vendor.
*Check this out before agreeing to buy.
The property could increase in value
You have full freedom (within planning constraints) to alter your property as you see fit
You can choose to sub-let your property if you have excess capacity
You can fix your interest rate, so that you know your repayments will remain constant for a number of years.
Your deposit will use up a significant portion of your cash and will likely leave you more cash poor in the short run
Purchase costs can add up, including stamp duty taxes, legal fees and survey fees
Your property may fall in value, therefore you could owe more on the loan than the property is worth - negative equity
This is a longer-term commitment than leasing, and therefore may not be suitable if your business needs to remain agile.
This document is intended to be an aide-mémoire to help you consider different forms of finance and which ones might be appropriate for your business; it is not a comprehensive guide to all forms of finance. There could be different tax and legal implications associated with different forms of finance. Professional tax and legal advice should be sought to prepare for these different forms of finance.