Is buying a commercial property worth it for startups and growing businesses?

In his latest blog aimed at startups and growing businesses, Steve Harcourt, director at Prime Accountants Group, sets out the pros and cons of buying a commercial property, at a time when interest rates are high.

With interest rates running high, many business owners must be wondering whether this is really the right time for buying a commercial property.

If obtaining premises is an important part of your business strategy, buying a commercial property is certainly worth considering, even now. But I’d also advise you to be open-minded about what type of premises that might be.

Particularly in the Midlands, the market for buying a commercial property is good with decent availability. But people often come to us with an unrealistic wish-list as to the things they feel they need from day one.

The starting point when buying a commercial property is to find a building at the right price that ticks most – but perhaps not all – of the boxes you need.

Or consider subletting to a tenant if a building you like has more space than you require straightaway.

When buying a commercial property, the main banks tend to look at startups or new businesses only if they can demonstrate strong performance and profitability.

Even then, they may lend money, but not the full amount asked for.

Typically, they’ll be looking for a strong set of accounts covering a two-to-three-year period, or personal guarantees from the directors of the business to mitigate their risk.

If you are considering buying a commercial property under these circumstances, then it needs to be affordable over the long-term, especially with interest rates and inflation running high.

I’ve been to a few banking seminars recently where experts were saying that interest rates may not come down significantly until the end of 2025.

The impact on your cash flow over this timescale requires careful thought when buying a commercial property.

At Prime Accountants, we have lots of connections with organisations that offer business grants, something that’s worth factoring in when buying a commercial property.

Usually, these grants are arranged at a local level, so the funding can sometimes be hard to find if you do not know where to look.

Bear in mind that a grant is not designed to pay off a huge chunk of the mortgage when buying a commercial property. But you may decide to purchase a building and then seek funding to develop it, for example by making it more energy efficient or environmentally-friendly.

This assistance can nonetheless have a positive effect on affordability when buying a commercial property, with the money saved over the long-term on things like energy bills contributing to stronger profits and improved cash flow.

Under the right circumstances, buying a commercial property can attract certain tax allowances. Even though the relief here can be quite small, it’s still something worth considering.

However, putting the asset into your pension fund can be a tax-efficient use of your money when buying a commercial property.

There are various vehicles available to help you achieve this. At Prime Accountants, we can advise you on choosing the right time to set up something like a property investment company or family investment company, rather than putting the commercial property into a normal limited company.

If you own the building and keep it in good repair, then the asset will appreciate over time.

Just like purchasing your home, buying a commercial property can be an investment for the future, especially should you decide to sell your business further down the line, having received the full value of the building as part of your exit package.

Companies across the West Midlands and beyond choose to work with Prime Accountants when buying a commercial property because we give them the commercial advice they need to help them make the right decisions.