Financing your commercial property purchase
Provided by Business Partners Ltd, South Africa's leading investor in SMEs
If you've found a property you'd like buy to for your business, the next challenge is to apply for a bond. Here are some frequently asked questions about finding finance for commercial property.
Q: What is a commercial property?
A property that is legally zoned (permitted) to have a business conducted from it. Properties that can be financed through a commercial property loan are:
- Shops, offices or blocks of flats
- Warehouses, showrooms, factories or similar industrial premises
- Sectional title complexes (zoned for business purposes) including individual units in these complexes
- Existing residential properties which are primarily used for business purposes and which have business rights or consent use
Q: How can I prepare before I apply for a loan?
A: The criteria for a loan will depend on who you approach. Do some research - websites are generally a good source - about who you can approach and what they expect from prospective lenders. Have your business plan ready and all the research you have done on the property you intend to buy. A lender will want you to convince them that this is a good investment, so compile the documents to this effect.
Q: Can I approach any bank for a loan?
A: Finding someone to back you is not as difficult as it used to be. You have to go to a bank or a financier that deals with commercial property. There are also various private and government-supported funds geared towards SMEs that may give you a loan. Have a look at our Finding Financing category for the names of organisations to approach.
Q: What kind of interest rate will I be charged?
A: Just like you would if you were buying a home, you can shop around and see which bank will give you the best interest rate.
Q: Are there any other costs I should be aware of?
A: Make sure you know what costs are included in your loan. Most financiers will charge administration fees and VAT, so get the exact amount and ask whether it will be included in the loan amount or if it's payable separately. Also factor in the cost of the legal fees associated with your loan, such as transferring attorneys, etc.
Q: Do I need a deposit?
A: No matter who you are asking for money, your loan will have to meet with certain requirements. Most lending institutions will expect you to have a certain percentage of the loan to put down as a deposit. The exact requirements will depend on who you approach, how they work and on the viability of your property purchase.
Q: What loan term can I repay the loan over?
A: Again, this depends on who is financing your loan. Most institutions do loans over a 10 year period, while some will consider 15 and 20 years. This normally also varies according to whether you are buying the property to occupy yourself, or if you will be renting out space to tenants.
Q: What else will be required to secure a loan?
A: It is often recommended and sometimes a requirement that your loan is supported by suretyships. If you will be renting out space to tenants, this will count in your favour as long as you can prove that lease agreements have been ceded.
Q: How do I know if I'm paying a fair price for the property I want to buy?
A: Whoever you are applying for a loan with, will send out an expert to value the property. After all, it's in the financier's best interest to ensure that the property is indeed a good investment. The financier will usually provide a loan according to the market-related value of the property. If the asking price is much too high, the financier will advise you accordingly, but it's for you to negotiate the purchase price with the seller.
Q: Who will do the registration of the property?
A: Once you receive finance to buy your property, the registration process can begin. Your property will be registered by a transferring attorney - appointed by the seller - who facilitates the transfer of ownership from the seller to you. It's probably a good idea for you to have your legal representative look over all documents to make sure they are in your best interest and to clarify any inconsistencies.
Q: Who is responsible for insuring the property?
A: Essentially, the property will be registered in your name, making you the legal owner. You are therefore wholly responsible to have the property adequately insured. Get advice from experts in this area, to ensure that you have all the necessary insurances in place.
Business Partners offers investment financing for a wide range of commercial and industrial premises and the expertise to match the needs of each individual SME and/or entrepreneurial investor with the right property.
Q: Is there a service provider that offers finance, broking and management solutions all in one?
A: Business Partners,
Investments are structured using equity, shareholders' loan accounts and term loans or any combination of these. Individual solutions are structured once the level of risk and the potential return investment of the venture have been assessed.
The structure of each investment is made using Business Partners' unique investment models: Property Equity Partner - designed for the entrepreneur with an exceptionally viable multi-tenant property investment opportunity - and Property Risk Partner, which caters for the needs of the entrepreneur with a viable business who wants to purchase his or her own premises, but has limited capital or security to contribute.
If you have already purchased a property, but need assistance in managing it, Business Partners has an independent property broking and management division. Visit the Business Partners website for more information.
As with any purchase of this kind, it's important to get sound financial advice from an expert in this area. Before you even consider buying a property and approaching a financier for a loan, get a financial planner to look at your finances and determine whether it's in your best interest (and the best interest of your business) to buy a property.
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