For many businesses, renting commercial premises is simply part of the monthly expenditure. It offers flexibility, requires less capital upfront and, particularly in the early stages of a business, can make perfect sense.
But as a business becomes more established, there may come a point when a different question is worth asking:
Instead of continuing to pay rent, could owning your premises make better commercial sense?
When the Opportunity Comes to You
Buying your premises isn’t always something that’s been part of a long-term business plan Sometimes, the opportunity arrives unexpectedly.
A landlord may decide to sell and offer the existing tenant first refusal. A neighbouring unit might become available. Or a growing business may simply realise it needs greater control over the premises it operates from.
Whatever prompts the conversation, purchasing commercial property is a significant commitment and the decision needs to work for the wider business, not just from a property perspective.
Rent or Mortgage: What’s the Difference for Your Business?
Renting provides flexibility, but ultimately the monthly payment is a cost of occupying someone else’s property.
Buying changes that dynamic. With a commercial mortgage, your business is financing an asset that could build equity over time.
Ownership can also provide greater certainty over one of your most important operating costs. There are no future landlord rent increases or lease renewals to negotiate, and you’re less exposed to a landlord deciding to sell or change their plans for the property. For an established business that expects to remain in the same location for the foreseeable future, that certainty can be valuable.
But Don’t Forget About Working Capital
Buying isn’t automatically the better option. One of the biggest considerations is how much cash the purchase will take out of the business. A deposit, professional fees and other associated costs can require a significant amount of capital.
And that creates another important question:
Could that cash be more valuable elsewhere in the business?
If using a large proportion of your available cash to purchase a property leaves little working capital for stock, wages, equipment or future growth, the structure may need to be reconsidered. The aim shouldn’t simply be to secure the property. It should be to do so without restricting the business around it.
What Else Should You Consider?
Before deciding whether to buy, it can help to look beyond the monthly rent versus mortgage payment.
Consider:
- How long are you likely to stay? If your business could outgrow the premises relatively quickly, buying may provide less flexibility.
- Will the property support your future plans? Think about recruitment, storage, production capacity and expansion.
- How much cash will the purchase require? Consider the impact of the deposit and associated costs on working capital.
- Could the property generate additional income? Depending on the property and relevant permissions, surplus space may potentially be let to another business.
Commercial Mortgages Aren’t One Size Fits All
Just as businesses differ, commercial mortgage structures do too.
The amount you can borrow, deposit required, repayment structure and lender requirements will depend on the business, the property and what you intend to use it for. This is also why looking at the wider funding picture matters.
A business might be able to purchase its premises but the real question is whether the proposed structure leaves it in a strong enough position to continue investing and growing afterwards.
So, Should You Buy?
There isn’t one answer. For some businesses, renting will continue to offer exactly the flexibility they need.
For others, particularly established businesses planning to remain in the same location long term, purchasing their premises could provide greater control, stability and the opportunity to build equity in a business asset.
If you’re approaching a lease renewal, considering a move, or have been given the opportunity to purchase the property you currently occupy, it’s worth exploring the numbers before making a decision.
The question isn’t simply whether you can buy your premises. It’s whether buying supports where you want your business to go next.
At BFS, we can help you explore the commercial mortgage options available and consider how they fit alongside your wider business funding requirements.
