Freehold or leasehold? It’s the ultimate question when it comes down to property purchases. Do you want to pay substantially less for your property but have limited ownership, or do you want to fork out for the full ownership at a much greater cost? The right answer will depend on what you need, but the choice will have impact on your business.
In the business world, there’s a prevailing idea that lenders will never finance a business that doesn’t own the freehold to their property. Before we say anything else, let’s address this; it isn’t true. Yes, it can be harder to find finance on a leasehold. But with unsecured loans, the EFGS and a variety of other options, it most certainly is not impossible. With that out of the way, let’s talk about financing a leasehold business.
The first thing to look at when financing a leasehold is fairly simple – do you want to own the freehold? As we said, it’s not necessarily easy to find finance for leasehold businesses, and owning the freehold will open up more options. It also, of course, puts your business in a more stable position, as you’re free from leasehold requirements. If you want to look at buying out your freehold, lenders are generally happy to consider the freehold being bought as the security for the loan.
If you don’t want to buy out the freehold, then your options for finance are more limited. However, you most certainly still have options. An unsecured loan, for example, is often smaller than its secured counterparts, but has no security tied into it. There’s also the Enterprise Finance Guarantee Scheme (EFGS), which is dedicated to ensuring that lenders provide unsecured finance to help small businesses grow. There are other various options available on a case-by-case basis, which your broker can help you uncover.
Just because you lack security, it doesn’t mean you’re out of luck. However, if you’re looking at future plans for your business on a leasehold, it’s always worth considering if raising finance for the freehold purchase might be the right choice for you.