For many business owners I speak to about their finances, property is usually seen as just another monthly cost to be managed. A burden.
But it doesn’t have to be that way. There are, in fact, many ways property can be leveraged to unlock real opportunities, as ripe as anything else in the business plan.
From reducing risk, to diversifying income streams, injecting cash into the business, or simply managing how you pay for your premises in a more cost-effective way, all kinds of businesses can use property to their advantage. The problem is, not enough do.
So, here, I’ve outlined three ways you can leverage property to advance your business. We’ll start off with a more obvious one…
Buy, don’t rent.
Very few people, if given the choice, would choose to pay rent for the home they live in. Ask a home renter for a list of pet-peeves and having to pay off someone else’s mortgage will invariably top it.
Why should it be any different for a business?
Purchasing your premises is a big step, but can be well worth pursuing if you can afford it.
First and foremost, your mortgage payments could be significantly less than the rent you’re currently paying, making for a much healthier monthly cashflow. While being able to lock into a long-term loan can provide greater stability for financial planning purposes – no more hikes in rent at short notice, nor capital held as a security deposit.
But there’s many more potential benefits, too.
By owning the property, you can make it truly yours. Adapt, modify and decorate the premises however you want without going cap in hand to the landlord.
Then, if you need to move, you may be able to rent out the premises to another company and earn income from it. Or sell up and hopefully benefit from some capital appreciation.
Purchase an additional property
Of course, purchasing an additional property when looking to expand your footprint is one option available to you, too. However, you could also invest in additional bricks-and-mortar even when you’re not looking to grow your core business physically.
After all, you don’t have to be a property investment company to reap the benefits of renting out property. It can be a simple way to start generating extra income. What’s more, having additional revenue streams that aren’t tied to your day-to-day operations can hedge against market downturns and raise the overall value of your business.
This does come with a degree of admin, sure. But, for an extra hands-off approach, you can outsource the day-to-day management of your investment properties to specialists.
Refinance loans to unlock capital
Alongside potentially finding a cheaper interest rate or adjusting the length of your commercial mortgage, refinancing can be a great way to free up cash to be invested back into the business.
You could choose, for example, to release some equity in your premises to fund a long planned-for investment in new machinery, taking on additional staff, or even helping finance another property purchase.
This kind of cash injection can be hard to come by, and it is astonishing how few business owners realise the potential of the four walls around them.
Things to consider
The responsibilities of property ownership are significant and business leaders need to go in with their eyes wide open.
You are now responsible for insurance, maintenance and security, with the costs that come attached. You’ll need to kit the place out with furniture, telephony, internet and whatever equipment your staff need to do their work. If purchasing a property to rent out, you’ll need to manage finding tenants, or pay someone to do it for you.
Also, property ownership doesn’t offer the same flexibility as renting. If your business needs change, you can’t just wait for the rental term to expire and find something new.
Bear in mind, too, that commercial mortgages use the property as collateral to secure the loan. You need to go into the agreement knowing that you might lose your premises if you fall behind on payments.
All this means that choosing the right property is essential. In the case of your own premises, it should be large enough to grow into but not so big that you’re overstretched financially.
Finding the right commercial mortgage for your business is also important. You can bring down monthly payments by having a longer-term loan, but that might increase the overall cost. Independent brokers can help weigh the options and identify the right one for your needs.
At a time when many small and medium-sized businesses will be looking for opportunities to expand or diversify, it’s important you know about how purchasing a new property or refinancing your existing premises could help.
At Allica Bank, we give every one of our customers access to an expert relationship manager to provide expertise tailored to your business on topics just like these. Someone that can identify where you could perhaps benefit, and help you secure the commercial mortgage you need to get there.
Would you like to know more?
Fill out the form below to speak to one of our team about how you can use property to boost your business prospects.
BEAR IN MIND: Borrowing through Allica Bank involves entering into a mortgage contract secured against property. Your property may be repossessed if you do not keep up repayments on your mortgage.