Finance to invest in own business property

Commercial and industrial property remains a secure investment for entrepreneurs – either to provide long-term premises for their own businesses or as high-return capital investments.

For the individual small or medium enterprise, renting premises may seem to offer greater flexibility than ownership. However, long-term tenancy may not be guaranteed and the investment made in improving rental premises may be lost if a lease cannot be renewed. Property ownership offers not only security of tenure, but also enables entrepreneurs to grow the overall equity of their businesses. Calculations show that, by purchasing a property or properties for own use, small and medium enterprises can save up to 50% on premises costs over a period of 10 years without compromising the business’s own cash resources.

For entrepreneurs seeking a property component for their investment portfolios, multi-tenant properties are a very attractive and viable option, as these can provide both capital appreciation and rental income.

Business Partners offers investment financing for a wide range of commercial and industrial premises and the expertise to match the needs of each individual business and/or entrepreneurial investor with the right property.

Business Partners provides up to 100% finance to SMEs to buy their own business properties.

When considering to buy a property, think about the following:

• Is the business potentially able to generate sufficient cash flow to afford the regular repayments required?

• Is this the right property? ― consider location, facilities, size and condition

• Is the purchase price in line with the market value of the property?

Availability of finance for properties

Business Partners Property Investments caters for the needs of the entrepreneur with a viable business who wants to purchase his or her own premises, but who has limited capital or security to contribute or who does not want to compromise the business’s cash resources for the deposit.

In most cases financiers require a cash deposit before considering financing a deal. The deposit amount depends on the risk appetite of the financier and deposits up to 50% may be asked for. However, this could be lower given the economic condition, the price and the profile of the entrepreneur.

Business Partners allows the entrepreneur a choice of different financing options and can structure the deal by advancing up to 100% of the financing required.

Financing criteria

• The operating business must be proven to be viable, able to afford the property and must have been in business for at least two to three years

• The property will be evaluated in terms of location, price, purpose build, facilities, size and condition

• The maximum repayment period for any property investment is ten years

Business Partners will not only evaluate the property, but will also focus on the operating business. This means evaluating affordability, profitability, track record, and the entrepreneurs behind the business.

Structuring the deal

The deal, however, must be seen in context of the risk to be understood to be fair. If Business Partners finance the full amount, the company does take some risk. This risk is hedged by a cash deposit where such a deposit is paid, as is the case with commercial financiers. Therefore, Business Partners needs to be rewarded for the risk taken. This means that the finance will be offered at prime rate (plus or less some percentage, depending on the deal) for a period of up to ten years, but will also request incentives for taking the risk.

Business Partners shares in the appreciated value of the property over a period of time. The result of this transaction for the entrepreneur is the following:

• The entrepreneur secures the property and obtains an asset that may appreciate over a period of time
• The instalment will probably be in excess of the rental payable in the short term, but the entrepreneur has no rent escalation concerns afterwards
• The entrepreneur can upgrade the property thereby increasing the value
• There are long term cash flow advantages

To illustrate the cash flow implications the following exercise can be done:

* General property expenses have been excluded here (rates, maintenance, insurance)