Searching for Premises

5. Buying the Freehold

Few small businesses choose to purchase premises, as it ties up cash, which is generally needed as working capital or to fund expansion. You usually need cash for 30 per cent of the price and a commercial mortgage for the other 70 per cent.

5.1 The advantages include eliminating one layer of uncertainty from your long-term business planning.

• Control - you own the freehold until you choose to sell the property.
• Stability - with a fixed-rate mortgage, the schedule of mortgage repayments and interest is negotiated once and for all. There should be no large increases in your monthly outgoings (whereas rents can increase significantly).
• Customised premises - you can alter and improve the premises as much as you like to suit the needs of your business (subject to planning permission and building regulations).
• Investment - in the long term, the trend in property prices is upwards.
• Security - owning your premises is always a definite advantage when negotiating with your bank manager.

5.2 The disadvantages stem from the major financial commitment you make.

• Cash drain - can you afford to have so much money tied up in property, or should you keep it for running the business? Unless you have surplus cash, and will not need the money in future years, buying a property may be an unwise decision.
• Risk - property values can sometimes go down, as well as up. Properties may also be costly to maintain.
• Fees and time - finding and buying the right property can be time consuming, and involves paying legal costs.
• Responsibilities - you have to manage, maintain and repair the property yourself.