As the economy starts to churn again after a prolonged lockdown, commercial property buyers are entering the market to take advantage of excellent prices and eager sellers. 

Financing is always a crucial part of the property purchasing process – and conditions are very different than they were before the pandemic. In this article, we’ll take a look at some strategies you can employ when purchasing your first post-COVID commercial property.

How to secure a bond on your commercial property

The relatively high cost of a typical office building or unit, as well as the lending requirements that most banks impose on bond applicants, make it more difficult to finance a commercial property than a home. 

Nonetheless, if you have sufficient business income, cash reserves to pay a deposit, and the necessary patience to navigate the lending landscape you should be able to secure an excellent financing deal. 

  • Low interest rates count in your favour. The current prime lending rate has fallen to levels last seen in the 1970s. This is good news from an affordability point of view – especially if you lock in a favourable capped interest rate. 
  • Shopping around is essential. You can choose to approach your business banker directly or use the services of a financial institution. Both of these strategies have their share of pros and cons which we’ll cover in more detail below. 

How to meet the criteria for the best commercial property financing

When you apply for a bond, there are three major questions that will need to be answered in the affirmative before the process can be finalised:

  1. Does my business qualify for the amount I need to borrow? 
  2. Do I have sufficient cash on hand to cover the deposit?
  3. Will the monthly bond payments be affordable even if interest rates rise?

Meeting the above criteria may or may not be easy depending on your company’s current financial circumstances. 

  • You’ll need to supply your broker or bank with a recent assets and liabilities statement as well as your projected cash flow for the next year or more as part of the application process. 
  • It’s important to note that commercial property bonds are often repaid over a period of 10 to 20 years – not 20 to 30 as with a residential bond. This means that the monthly instalment amount will be significantly higher than it would be on a house of the same value.
  • Keeping your monthly payment affordable (considering that interest rates are at historic lows) will depend on the type of rate you select. It may be prudent to opt for a fixed rate bond if possible, to lock in the current savings over the long term when interest rates inevitably rise. 

A successful property investment starts with the selection process

If you’re keen to finance a commercial property investment in the greater Cape Town area, our team would love the opportunity to help you select suitable premises and help you negotiate a mutually beneficial price with your prospective seller. 

Contact Commercial Space today to speak to one of our Cape Town area experts.