Leasing vs Buying Premises

Your business premises are widely regarded to be the second biggest expense that you’ll shell out for after staff wages.

Your premises may turn out to be your largest fixed asset, making your choice of property an important one.

So should you opt for buying your own place or does renting make more sense?

Renting

Generally, it suits new businesses to start off renting a property. After all, they may not have sufficient capital outlay, or have an opportunity to borrow capital from another source. Even if they can afford it, spending money from the business’ precious coffers can seem foolish if it doesn’t leave much to fund the buying of stock and equipment.

The best thing about renting is the total flexibility: you can move premises whenever you want and at very short notice. You may find as a start-up, therefore, that renting premises will suit you better until either your business grows, and you need to expand, or you are in a financial position to purchase premises.

Also, there is no responsibility on your head for things like maintenance when you don’t own the property, and you won’t be affected by interest rate rises and dips in the property market.

You could, however be subject to rent hikes. So it’s always worth negotiating with the landlord and checking how and when the rent will be reviewed, before you sign a lease.

However, there are advantages to buying your own premises that should be weighed up too.

Buying

Mortgage repayments are likely to be similar to, or less than, rental payments and such payments aren’t subject to huge rent increases.

If you have spare room in your premises then you can choose to sublet it, thus boosting your income. Also, the interest payments on a commercial mortgage are tax-deductible and any increase in the value of the property will translate into an increase in the value of your assets.

Bear in mind, however, that it is less affordable initially than renting, because you have put down a significant deposit. And if you own your premises you’re more much more immobile; it will take longer and be more complicated to move if you want to.

Commercial mortgages are, nevertheless, a flexible and affordable option for many businesses. Lenders will look at any operating and credit history your business has, and will also want to see accounts for the last three years. They may also want to see your business plan and references.

Typically, lenders offer a minimum of £25k for up to 25 years, though some may offer a 100% mortgage if you have additional security. You can go to the high-street banks, but it may be worth going to more specialised lenders who have products that suit your needs to find the best deal possible.