Business Models

Is It Better to Rent or Buy A Business Facility?

There are many factors every small business owner needs to consider when getting ready to make the decision whether to buy or rent a business facility.

Once a business owner determines his or her facility needs and searches for and locates the right facility, it’s time for another decision regarding the business property: Do you buy or rent the property?

Here are some considerations from luminablog.co.uk to help you understand what you’re getting into with each option.

Rent Vs Buying Business Premises

It’s not always easy to decide whether to rent or purchase business premises. Your budget will determine whether you are able to afford to purchase business premises. However, the type and size of your business will also play a role in deciding to rent or buy. Consider your business needs before making a purchase.

In the case of buying, you take a mortgage from the bank to purchase your business property. Taking a mortgage is pretty straightforward. If you live in London and its environs, there are several mortgage companies in the UK that can offer you funds to help you purchase your desired property.

The advantages of renting business premises

  • It’s easy to rent: You will need to deposit money and be able to pay monthly rent. You won’t have to tie up capital, and rents are flexible. You have more options with many options that will suit any business, large or small, including hot desking and industrial units.
  • Business expenses: Rent costs can be deducted off profits. This means that you will pay less Corporation Tax.
  • Flexibility: If you have outgrown your business premises, it is possible to transfer your lease into a more suitable location.
  • It is possible that you do not have the option: Renting is sometimes the only option in certain locations when compared to purchasing a freehold or leasehold property.
  • You have less work: Your landlord is responsible to maintain your property. Depending on the terms of your lease, additional amenities and services may also be included. This means that you will spend less time arranging them and can focus more on running your business.

Advantages and disadvantages of renting business premises

  • Space restrictions: There may be restrictions on the use of office space. Changes require consent from landlords. The lease may require that the office be restored to its original layout.
  • Prime locations are particularly competitive: If you do not sign a long-term lease, your rents may rise and you might have to move into new premises.
  • You will be there for the long-term: You will need to continue paying rent, even if your business slows down or you wind-up your company. This means you are responsible for any additional costs.

Advantages of purchasing business premises

  • Longer term cost benefits: You can fix your mortgage payments for up to five years. This is far more than you would get from a rental lease. In order to lower your Corporation Tax liability, you can offset interest payments against earnings.
  • Subletting income: You can also rent the space to other businesses if you don’t need it anymore.
  • Flexibility: You have more options to design the space you want by purchasing a property. You have the option to choose the layout, decor and branding.

Advantages and disadvantages of purchasing business premises

  • Capital intensive: Capital is required to purchase business premises. If your company doesn’t have enough cash, you may need to get a commercial mortgage in order to purchase the premises. It may be necessary to deposit a large amount, often as much as 40% of the purchase price.
  • Profit impact: A commercial mortgage can have a negative impact on your business’ profitability. Interest rate increases can affect mortgage payments, which could lead to unexpected costs. Other costs associated with buying include stamp duty, legal fees, valuation fees, and ongoing costs like business rates and buildings insurance.
  • Permission to plan: Planning permission is required if you plan to make major changes to the building in order to meet your business’s needs. Before you buy, make sure your plans are in compliance with all applicable planning regulations.