Could Your Business Own Its Premises?

A business buying its own premises may be worth exploring if:

• Your lease is approaching renewal.
• Your landlord has increased the rent.
• Your business has outgrown its current premises.
• You expect to remain in the same location for several years.
• You want greater control over fit-out or how the property is used.
• Your landlord has offered to sell the property.
• You have found another premises that suits the business.
• You have built equity in a home or investment property.

The property does not necessarily need to be owned by the same entity that operates the business. Depending on the structure, it could be owned personally, by a company, through a trust or by an SMSF where the relevant requirements are met.

Can A Business Buy Commercial Property?

Yes. A business owner can buy a warehouse, factory, office, clinic, showroom, retail property or other commercial premises for their business to occupy, subject to lender approval.

Commercial lenders will usually want to understand three things early:

• 1. The business: Is it established and able to support the debt?
• 2. The buyer: Is there enough cash or equity to complete the purchase?
• 3. The property: Is it acceptable security for the lender?

A strong business does not automatically make every property financeable, and a good property does not automatically mean the business can borrow enough to buy it.

Both sides of the transaction matter.

Can A Company Buy Property?

Yes. A company can own commercial property and borrow money to purchase it.

The company operating the business may buy the property, or a different company may own it and lease it to the operating business.

Company ownership is only one option. Whether it is the right ownership structure is a tax and legal question as well as a lending question, so it should be considered with your accountant and solicitor before signing a contract.

What Is The Right Ownership Structure For Buying Business Premises?

The right ownership structure for buying business premises could be the following:

• Personally
• Jointly with another person
• Through the operating company
• Through a separate property-owning company
• Through a trust
• Through an SMSF
• Through another jointly owned structure

The ownership decision should be made before you sign the contract.

How Much Can Your Business Borrow For Commercial Property?

Most lenders limit borrowing to 70-75% of the property value for commercial property loans. However, if you are buying your own business premises, you could borrow up to 80% of the property value.

Home Loan Experts is currently accepting commercial property loan applications starting at $500,000, with a minimum 30% deposit. The actual contribution required can be higher depending on the property, lender and overall scenario.

Borrowing is usually restricted by two different limits:

• How much the lender will advance against the property
• How much the borrower or business can support

The practical maximum is generally the lower of those two amounts.

Turnover Is Not The Same As Borrowing Capacity

A business turning over $5 million does not automatically have stronger servicing than a business turning over $2 million.

What matters is what remains after:

• Cost of goods
• Staff
• Rent
• Operating expenses
• Tax
• Existing debt
• Other commitments

Different lenders can also assess the same financial statements differently.

That is why a commercial-property borrowing assessment should go beyond simply applying an LVR to the property price.

How Can You Finance Your Business Premises?

There are several possible lending paths. Which one applies depends on the business, property, contribution, documents and ownership structure.

Full-Doc Commercial Property Loan

This is commonly used where the business has current financial evidence available.

The lender may rely on:

• Financial statements
• Business tax returns
• Personal tax returns
• BAS
• Bank statements
• Assets and liabilities
• Existing loan statements

Low-Doc Or Alternative-Document Commercial Loan

Not every self-employed borrower has two current years of completed financial statements available.

Some lenders may consider alternative evidence such as:

• BAS
• Business bank statements
• Interim accounts
• Accountant confirmation
• Other evidence of business income

Low-doc does not mean no assessment.

The lender still needs to be satisfied that the loan can be repaid.

Cash And Property Equity

The contribution may come from a combination of:

• Business cash
• Personal savings
• Home equity
• Investment-property equity
• Existing commercial-property equity

The loan assessment must take into account any additional debt created to access that equity.

SMSF Commercial Property Finance

An SMSF may potentially purchase qualifying business real property using fund cash and, where the requirements are satisfied, an LRBA.

SMSF commercial purchases have their own legal, superannuation and lender requirements and should be reviewed before a contract is signed.

Specialist Commercial Lending

A specialist lender may be considered where:

• Standard financial evidence is unavailable.
• A mainstream lender does not accept the property.
• The structure is more complicated.
• The business financial position needs a different assessment method.
• A previous lender has declined the application.

A specialist lender cannot make every transaction work.

The underlying property, contribution and repayment position still need to make sense.

Could Your Business Buy Its Own Premises?

If your business is established and you are paying rent for a warehouse, workshop, clinic, office or other commercial space, buying the premises may be worth investigating.

A business can buy commercial property to occupy itself. The harder questions are how much cash or equity you will need, how much the business can borrow, which lenders will consider the property and who should own it.

You do not need to have all of those answers before speaking with Home Loan Experts.

A useful starting point is knowing:

• The approximate property price
• The type and location of the premises
• How the business will use the property
• How long the business has been trading
• The cash or property equity you may have available

From there, we can help you work out what needs to be checked before you commit to the purchase.

Can You Use Property Equity To Buy Business Premises?

Potentially.

Business owners who already own a home or investment property may be able to access usable equity to help fund the commercial property deposit or purchasing costs.

Using Home Or Investment-Property Equity

Suppose you have:

• $300,000 cash
• $200,000 available through an equity release

You may have approximately:

$500,000 available before purchasing costs and cash reserves.

That can make a large difference to a commercial purchase.

However, the $200,000 released from another property is borrowed money.

It creates another loan that also needs to be serviced.

Can Additional Property Be Used As Security?

Sometimes another acceptable property can form part of the overall security structure.

This may change how much cash is required up front, but it can also link multiple properties to the debt.

Before proceeding, understand:

• Which property secures each loan
• How properties can be released later
• What happens if you want to sell one property
• Whether the structure affects future borrowing

What Types Of Business Premises Can You Finance?

Commercial property finance may be available for a wide variety of owner-occupied business premises, including:

• Warehouses
• Industrial units
• Factories
• Workshops
• Medical clinics
• Dental practices
• Professional suites
• Offices
• Showrooms
• Retail premises
• Mixed office-and-warehouse properties

A standard property has a reasonably broad range of alternative buyers or tenants.

A conventional warehouse in an established industrial estate may potentially be used by many different businesses. That can make the property easier for a lender to understand and value.

A specialised property has a narrower use.

Depending on the property, this may result in:

• Fewer lenders
• Lower maximum LVR
• A larger deposit requirement
• More detailed valuation
• Additional conditions
• Longer assessment time

The business may be excellent, but the property still needs to work as lender security.