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Know when to buy or rent a commercial property

Home Business Management Finance & Investment Know when to buy or rent a commercial property

COMMERCIAL property, whether rented or owned, will impact a small business’s cashflow, so making an informed decision will depend on a few factors that are unique to the business. Offering advice on this topic is Kevan Govender, regional investment manager at specialist small and medium-sized enterprise financier, Business Partners Limited.

“One of the key advantages of owning commercial property is that you will have free rein over any improvements. Having the freedom to design the space to reflect your business’ aesthetic may be beneficial from a branding point of view. Furthermore, commercial property could provide a safety net in the unfortunate event that your business needs to close. In these cases, the property can be used as a way of earning rental income.

Alternatively, if at any time your business needs to downscale, a portion of the property can be leased out to earn additional income. Better yet, proceeds from selling the property can serve as a retirement cash nest,” says Govender.

Key benefits

One of the key benefits of renting is the ability to claim the monthly rental amount as a tax-deductible expense. In the case of businesses that own their own property, only the interest portion is tax-deductible.

As Govender explains: “The advantages and disadvantages need to be carefully considered within the context of the current state of your business and the growth plan you have set out. There is no blanketed solution for all small businesses.” In some cases, the repayment due on a bond may be less or marginally more than the cost of renting. In other cases, renting may give business owners access to prime locations that may not be affordable as an option to buy. On the other hand, owning property in prime locations could see the value of that property increase substantially over time. This could be seen as a profitable investment that will reap positive returns and inject capital back into the business when it comes time to sell. Another aspect to consider is whether the size and nature of the commercial property you intend leasing or buying, aligns with your growth strategy.

Funding

“Entrepreneurs who elect to purchase commercial property will need to decide how they will fund this purchase. For those entrepreneurs, we offer up to 110% of the financing required, which allows small businesses to hang onto the initial capital outlay they may have needed for a deposit,” he says.

Business Partners is a specialist risk finance company for formal small and medium owner-managed businesses in South Africa and selected African countries. The company actively supports entrepreneurial growth by providing financing from R500,000 to R50 million, specialist sectoral knowledge and added-value services for viable small and medium businesses. Since its establishment in 1981, Business Partners has provided business finance worth over R21,5 billion in over 72,000 transactions facilitating over 671,000 jobs.

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