A small business guide to buying warehouse space

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Watching as your business grows can be an extremely exciting time for any business owner. But with growth comes expansion, and before long you’re likely to find yourself needing a much larger warehouse to hold all of your products or supplies.

Should I buy or rent warehouse space?

When looking for a new home for your company, the decision of whether to buy or rent can often be a difficult one with various pros and cons. Renting may be a more versatile option if you are unsure of your situation in six months’ time, but buying can often prove much more affordable in the long term.

Renting a commercial property is extremely popular and as a result, the market is large. The deposits required to rent a warehouse tend to be much smaller than if you were to buy, however, there is a risk of rent increases, which could come as a shock if you aren’t prepared. To minimise the impact of such fluctuations, factor potential price surges into your budget.

Buying office space is a much more serious commitment than renting and you will usually require a larger deposit. However, one of the main benefits of owning your warehouse is that you will be granted a strong element of freedom to alter and modify it as you wish. Also, if the warehouse gains value over time, you can profit from the increase yourself.

Buying a warehouse is much like buying a home and you’ll often require a mortgage in order to afford to buy the property. Conducting plenty of research into the market is advisable, and it’s best to ask yourself the following questions:

  • How much can I borrow?
  • Can I make overpayments?
  • What will the term of the mortgage be?

Calculate how much space is required

Investing in a property is a major step for any business. You will not only have to factor in how much your business has grown so far, but you’ll also need to plan ahead and estimate how much your business is likely to grow over the coming years.

Buying warehouse space can be a worthwhile investment and one that can host the development of your enterprise for quite some time. However, if you find yourself having to move again after a few short months, the investment might not pay off.

Are there sufficient transport links to the warehouse and are there parking spaces for my employees?

Location, transport and parking are often overlooked in the process of searching for a new warehouse, but ensuring that your new property comes with adequate parking spaces can go a long way to retaining your most valuable employees when you move to a new location. Also remember that many of your employees may use public transport to get to work. Is this still a viable option for them in the new location? Are there sufficient transport services nearby?

What else do I need to consider?

Choosing a property in an ideal location isn’t the only thing that can ensure that your employees stay with you during the moving process. Does your chosen warehouse also include appropriate facilities such as a kitchen, break areas and space for a meeting room if necessary?

Also, if you’re planning to use large machinery and equipment, is there enough space for these items? Are the warehouse doors large enough? Is access going to be a challenge? Are the aisles too narrow? If there are any factors that may obstruct your machinery or warehouse vehicles from operating correctly then it may be worth reassessing whether this particular warehouse is for you. 

How do I fund the new property?

The most common method of funding warehouses used for business is through a commercial mortgage. Commercial mortgages share some similarities with residential mortgages, but they also have some differences.

As with a residential mortgage, the premises may be at risk if you are unable to keep up with the repayments. This is why it is important to ensure that all your finances are secure and in order to prevent your business from ending up without a roof over its head.

You’ll often be required to invest a certain amount of your own money into the property in order to secure a mortgage for your warehouse.

Funding for your property can vary and some lenders are able to offer a much more tailored service than others. So by selecting the right lender, you can find a commercial property mortgage that is tailored to you.

What criteria do I need to meet?

The terms of a commercial mortgage can vary. In some cases it may be for as little as 5 years, but they may take 20 or so.

In order to access a commercial mortgage you’ll need to meet a set of lending criteria which has been determined by your lender. The criteria may vary depending on who you are seeking support from, but typically it might include the following:

  • Clean credit history
  • Three years’ audited or certified accounts plus current management figure
  • Two months’ bank statements
  • Assets and liabilities statement
  • Cash flow projections and business plans

Attaining a commercial mortgage can sometimes be difficult, and it’s not unusual for some lenders to refuse to lend you the money if you have a poor credit history. However, there are other commercial mortgage providers who may be able to help. If you have had credit problems in the past, you may be required to present evidence to show that you are now on the straight and narrow, if you can provide this proof of responsible finances, then your application is more likely to be considered.

What do I do now?

Most lenders require you to complete an application form in order to be considered for a commercial mortgage. In this form you will be asked to provide key information about your business, finances and mortgage requirements. 

It's likely that you will be asked for important addresses, shareholder details, three years’ income, turnover and profit, and details of previous employment. But there are many other credentials that may need to be provided before a mortgage is agreed.

For more information about commercial mortgages for your warehouse, contact Aldermore. A team of lenders with years of experience in warehouse mortgages are on hand to assist you in finding the most suitable mortgage for you and your business.

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