Commercial property finance: separate the building from the business

Buying premises can give a business more control over its location, but it also ties capital to a property. Assess the building as an asset and the operating business as a source of cash, even when they share an owner.

Clarify the purpose

Will your business occupy the property, or will it be leased to another tenant? The evidence needed can differ. Prepare a clear description of the proposed use and ownership structure. Ask your accountant and lawyer about tax and legal implications rather than copying another buyer's setup.

Business.govt.nz recommends considering the opportunities and constraints of both buying and leasing premises. Buying is not automatically better if it leaves insufficient cash for the business itself.

Look beyond the purchase price

Budget for due diligence, valuation, legal work, insurance, maintenance, fit-out and any required compliance work. Have relevant professionals assess building condition and permitted use. Get advice on GST and settlement treatment; do not assume residential purchase rules apply.

Examine the income or occupancy case

For a leased investment, review the lease, tenant position, expiry dates, renewal rights and responsibility for outgoings with your lawyer. For owner-occupation, test whether the operating business can meet property and finance costs while maintaining working capital.

Prepare questions for the lender

• What deposit, valuation and financial evidence are required?
• What loan term, repayment schedule and review conditions apply?
• Are guarantees or additional security requested?
• What happens if the premises are vacant or the business slows?

Our commercial loan service can discuss the financing structure. Use the business application checklist to prepare records, and keep independent legal and accounting advice central to the transaction.