Entrepreneurial Advice – Advantages of property finance

Arguably the most rewarding experience for an entrepreneur growing his or her business is the opportunity to exercise exclusive ownership over their own business property. Owning real-estate in this form is more than merely iconic and unveils further opportunities for the entrepreneur to capitalise on. This in fact bears greater significance to small and medium size enterprises which typically lack the capacity and financial clout to own property, and consequently embark on leases.

Tenancy whilst creating opportunity for businesses to operate from a rented physical location presents certain disadvantages that cannot be ignored. A restrictive feature of this option is that one periodically pays for the use of workspace but does not own it. Financing an existing building or development in the form of improvements to land, on the other hand, produces visible benefits in the form of a tangible asset with an appreciating nature. The leasing entrepreneur also faces other limitations which could prove technically unviable in the long-run. For instance, an entrepreneur requiring placement of permanent fixtures faces the genuine risk that these improvements may not be fully realisable in the event of eviction or failure to renew the lease. This would apply to certain operators, such as panel beaters, who require vehicle ramps for instance.

Businesses that are location bound, require purpose built premises and do not own their own property are forced to locate their businesses in areas that have buildings which cater for the specific needs of their operations. This may be impractical due to potential cost factors or increased logistic demands. Such shortfalls would in turn lower the overall operational feasibility of businesses and subsequently curtail their maximum profit and future growth potential. Very often the option to renovate the building beyond its existing state, to suit the needs of the business, is unavailable. This also presents the afore-mentioned disadvantages.

A major benefit of owning a property, and hence property finance is that it creates opportunity to unlock equity in an appreciating asset. The growing equity in the property is not realised at the expense of the operating entity or the entrepreneur’s time. This is because the asset appreciates effortlessly based on prevailing market movements. Thus the entrepreneur’s attention does not need to be diverted from the business operations to experience the ‘capital appreciation’. As the asset increases in value the return on investment ratio increases, giving rise to wealth creation via the property. The advantage presented here is that the growing equity can be unlocked in such a way so as to facilitate capital injection into the operating entity allowing for expansion of the business enterprise. Thus the benefits are twofold giving rise to growth of the business as well as owning a fixed asset. The property has potential to repeatedly serve as collateral in the form of pledged security to raise further funds required to meet the needs of the business as it grows.

These are some of the undisputable advantages of owning a property, making property finance a key ingredient in the sustainable growth and development of the small business enterprise. Thus the opportunity to own a property and partake of the advantages therein is not beyond reach. Business Partners Ltd can offer up to 100% finance for sound businesses where the entrepreneur wishes to purchase his or her own building or land to develop. A 100% finance means that one does not need to exhaust the cash flows of the business to purchase a property. By implication the funds can be used in the business to generate more favourable returns via the operating entity whilst maintaining the liquidity of the business, as opposed to locking funds into the asset.

For more information about Business Partners and its products and services for entrepreneurs contact call Mark Sing on 031-240 7700/7731, email [email protected] or visit www.businesspartners.co.za

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