As a small business owner in the UK, you might be looking for new avenues to expand your business. One of the most underutilised options is leveraging your commercial property. Leveraging refers to the use of borrowed capital to increase the potential return of an investment. In simpler terms, it’s about using your commercial properties to secure the necessary finance for business expansion.
This article will discuss how you can use your commercial property as a growth tool, focusing on financial options such as loans, long term financing, development funding, and exploring the current commercial real estate market.
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1. Utilising your commercial property for loans
Your commercial property is an asset you can utilise to obtain loans for business expansion. This process involves using your property as collateral or security against the loan. Commercial property loans are generally long term loans that provide businesses with the necessary capital for growth and development.
Banks and other financial institutions will assess the value of your property, its yield, and future potential before approving a loan. It’s critical to have a clear, detailed business plan that outlines your expansion strategies and how you intend to repay the loan. It’s also essential to be aware of the terms and conditions of the loan, as failure to repay could result in the loss of your property.
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2. Financing options for property development
If your business owns land or commercial real estate, property development can be another viable option for expansion. This could involve renovating or extending existing properties, or constructing new buildings on land you already own.
Property development requires significant capital, but numerous financing options are available. Development finance is one such tool, which provides funding for the entire development project, from the purchase of land to the construction of buildings.
Remember, property development is a long term investment and it’s essential to consider market trends, demand, and the potential return on investment. You should also consult with a property advisor or financial planner to understand the intricacies of property development and ensure it aligns with your business growth strategy.
3. Leveraging commercial property for business capital
Capital is the lifeblood of any business and having access to additional capital can support your business’s growth. Your commercial property can be a source of such capital.
Equity release is a commonly used method to unlock the capital tied up in your commercial property. This involves remortgaging your property or taking out a secured loan against its value. The funds released can be used for business expansion, including buying additional properties, upgrading equipment, or investing in new business ventures.
Keep in mind that while equity release can provide you with substantial capital, it also involves borrowing against your property. Therefore, it’s essential to consider the risks and potential implications, and seek professional advice before choosing this option.
4. Exploring the real estate market for business expansion
The real estate market can offer opportunities for business expansion. If you own a commercial property in a high-demand area, selling it could provide you with substantial capital for business growth.
Alternatively, leasing your property to other businesses can generate a steady income stream that can be reinvested into your business. You might also consider investing in additional commercial properties, which can diversify your business and provide long-term financial security.
However, these options require careful consideration of market trends, property values, and potential risks. Market research, due diligence, and professional advice are critical to making informed decisions and ensuring your property decisions align with your business’s growth strategy.
5. Using commercial properties to secure long term finance
Long term finance is a significant requirement for small businesses aiming for expansion. Long term loans or financing options with repayment terms of more than a year can be secured using your commercial property. This could involve a business mortgage, where your commercial property acts as collateral.
Long term finance can provide your business with the necessary cushion to manage business expansion costs, while spreading the repayment over a longer period. This can be beneficial for managing cash flow and ensuring financial stability while your business undergoes expansion.
However, securing long term finance using your property means your property is at risk if you cannot meet the repayment terms. Therefore, it’s crucial to assess your business’s financial health, projected income, and repayment capabilities before opting for this route.
6. Bridging loan as a short-term funding option
Bridging loans can serve as a short-term funding solution for your business expansion. This type of loan is usually used to "bridge" the gap between short-term cash flow needs and long-term financing. It’s an excellent choice when you need quick funds for immediate opportunities or emergencies.
If your small business requires rapid access to cash, you might consider using your commercial real estate as collateral for a bridging loan. Lenders often provide these loans within a short time frame, allowing you to capitalise on business opportunities as they arise.
However, bridging loans often come with higher interest rates due to the short-term nature of the loan and the speed at which funds are made available. It’s crucial that you factor in these interest rates when considering this funding option and ensure you have a repayment strategy in place.
Moreover, it’s essential to understand the legal implications of a bridging loan. While the law overview is quite complex, it is centred around protecting both the borrower and the lender. Be sure to consult with a legal advisor to understand the terms and conditions fully.
7. Maximising the value of your intellectual property
In the realm of business, both tangible and intangible assets hold value. While your commercial properties are tangible assets, your intellectual property (IP) – including patents, trademarks, copyrights, and trade secrets – is an intangible asset that can be leveraged for business expansion.
You can monetise your intellectual property in several ways. Licensing your IP to another company can generate ongoing royalty payments. Selling or franchising your IP can provide a lump sum of cash. Alternatively, you could use your IP as collateral for a loan.
Before proceeding, it’s crucial to get a proper valuation of your IP. This process can be complex, so consider seeking advice from a professional experienced in IP valuation. Also, protect your IP rights through the appropriate legal channels – a robust IP protection strategy enhances the value of your intellectual property and makes it a more enticing prospect for lenders or buyers.
Remember, your IP is a unique and potent asset. When used strategically, it can unlock new opportunities for business growth and expansion.
Conclusion
Leveraging your commercial property for business expansion involves more than just owning a property. It requires a clear understanding of the real estate market, various property finance options, and the pros and cons of each strategy. Whether you’re taking out a commercial mortgage, applying for a bridging loan, developing your property, or monetising your intellectual property, the key is to align these strategies with your overall business growth plans.
In each case, it’s advisable to involve professional advisors, conduct thorough market research, and analyse interest rates and funding implications. More importantly, remember that while commercial property can be a valuable asset, it should be leveraged wisely. Every decision should consider the short term and long term implications, cash flow, and the financial health of your business.
As a small business owner, the journey of business expansion is undoubtedly challenging, but with the right strategies and judicious use of resources, including your commercial properties, your business can successfully navigate its growth trajectory.
