Three signs that your business is ready for a commercial mortgage

Three signs that your business is ready for a commercial mortgage

While other businesses are considering the long-term impact of remote working, Andrea Reynolds, CEO at Swoop, asks whether now is the right time for SME owners to look at buying their premises.

Now is a great time to think about property. The last year has brought in huge changes and many businesses have found that their ideal premises in 2019 are no longer fit for purpose in 2021. While there have been plenty of headlines predicting the end of the office as we all get comfortable with remote working, my experience of helping businesses to grow is that the best strategies are about making positive responses to change, rather than fighting fires in the short term. 

Property is by definition a long-term commitment, but you could be forgiven for thinking that now is not the right time.

Despite being on the reopening roadmap, there are still plenty of premises that are not just closed, but boarded up. The most obvious casualties at the shopscape level are the chains of coffee shops that service the office workers around them.

Applying for a commercial mortgage might seem counterintuitive right now: the twin impacts of Covid and Brexit are contributing to uncertainty in the market, putting many businesses off even considering the option. But if your personal circumstances are bucking a larger trend, this could be the ideal opportunity to go against the pack. 

I spoke to Ian Boden, Swoop’s go-to expert on commercial mortgages, to get an understanding of the market and availability of products. He told me: 

If a company is considering a commercial mortgage, it helps if they are in a sector that is growing overall. Commercial mortgages are like regular mortgages – the low interest rate isn’t forecast to change any time soon, which makes it cheap to borrow a large amount.

As with any loan, lenders will favour customers who can demonstrate a track record of sustainable profitability. Another factor to consider is loan-to-value (LTV) – the amount of money a lender is prepared to offer against the value of a property. 

Ian Boden told me: High street banks initially look attractive because they tend to have the lowest rates, but they may have less favourable LTV and capital repayment terms.

If such repayment terms are more important to you, it may be necessary to look beyond the high street. Ian says: Challenger banks generally offer more generous interest-only repayment periods to win business. As for the specialist non-bank sector, these institutions potentially offer higher LTV and longer interest-only repayment periods, but at the cost of an increased margin.

Is now a good time for you to consider a corporate mortgage? That will depend on your circumstances, but if any of the following three things are true of your business, it could be the right move.

One: you have experienced a growth spurt in 2020/21

The cliche that corporate culture eats strategy for breakfast is still true. Businesses that have done well through lockdown are likely those which went into it with an agile structure, and perhaps the removal of cultural blockers within the company itself contributed towards this. As we have found in the last 15 months, culture cannot be created online as easily as it can in a dedicated workspace. If your business has suddenly grown from a WhatsApp group to dozens of slack channels, you should think about finding a place for all your workers to call home.

Two: it’s time to relocate

The location is important but if you are paying sky high rent on the place in town that everyone has to commute to, consider buying something closer to where you live and making it your base of operations. This could lead to substantial savings that you can invest elsewhere in your business. You could cut down on commute time if you move out to be closer to your out-of-town workforce. Even those who live in the city might find that jumping on a train in the morning is less of a chore when everybody else is going in the other direction.

Three: you are serious about growing the long-term health of your business

The best time to plant a tree was 20 years ago. The second best time is now. Investing in a long-term asset for your business demonstrates confidence in the enterprise. You are building a future and investing in an asset against which you can borrow if necessary. Psychologically, owning your headquarters informs your culture and says something about how you do business: here for the long haul, not a quick buck.

As we build back the economy, we need good news stories. Whether we send them out into the world or just tell them to our internal stakeholders, When a business buys a property, it is a very deliberate statement of optimism for the future. [ENDS]

Andrea Reynolds
Andrea Reynolds

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