A business owner had been renting a large commercial yard that was critical to the operation of his business.
When the landlord decided to sell, he was given roughly two months to find an alternative. The problem was that finding another property wasn’t straightforward. He needed a yard with the right size, access and zoning, and there simply wasn’t enough time to find a suitable property and relocate the business.
At the same time, he had recently made two significant investments in the business: purchasing the goodwill of the business and around $1.5 million of plant and equipment. The business was in a strong position, but the timing had left him cash poor.
He needed a way to fund the purchase of the yard without having to sell assets or disrupt the business.
The timing couldn’t have been more difficult. The landlord had listed the property for sale and the business owner had roughly two months to find a solution.
Moving wasn’t simply a matter of finding another commercial property. The yard needed to meet the specific requirements of the business, including its size, access and zoning.
At the same time, the business owner had recently invested heavily in the business, purchasing its goodwill and around $1.5 million of plant and equipment. He had valuable assets, but much of his available cash had already been committed.
The bank was prepared to lend 70% of the property’s $5 million value, providing $3.5 million towards the purchase.
That left approximately $1.5 million for the deposit, plus stamp duty and associated purchase costs.
The question was where the remaining funds would come from.
A key part of the process was looking beyond the client’s available cash and considering the assets already sitting within the business.
Much of the client’s fleet and plant was owned outright and was largely unencumbered. The equipment had been paid for and was doing its job within the business. But rather than simply treating those assets as something that had already been paid off, we looked at whether they could be used to support the property purchase.
The resulting structure combined a $3.5 million commercial property loan with a $1.75 million asset finance facility secured against the existing plant and equipment.
Almost all of the asset finance was written against machinery that was already debt free, with approximately $320,000 of the facility sitting outside that existing unencumbered equipment.
The asset finance was structured over five years with no balloon payment.
Just as importantly, the numbers needed to work for the business. The additional commitments increased monthly outgoings by around $32,000, so cash flow was tested before the structure was put in place. The property repayments also landed broadly in line with the rent the business was already paying for the yard.
The business owner was able to purchase the $5 million commercial yard rather than having to relocate the business under significant time pressure.
The existing plant and equipment provided a way to fund the deposit and purchase costs without requiring the business owner to sell productive assets or find the full amount in cash. The monthly commitment increased, but the business was already paying rent at a similar level.
The difference was what those payments were now working towards. Instead of continuing to pay rent on a property he didn’t own, the business owner was building an asset that would remain with him.
At the same time, the five-year asset finance facility provided a defined pathway for the additional debt secured against the plant to be paid off.
For business owners, valuable assets aren’t always limited to cash in the bank or property.
Plant and equipment that has been paid off can also form part of the bigger financial picture. In this case, the business owner had significant value sitting in assets he already owned outright, but hadn’t considered them as a potential source of funding.
The important question wasn’t simply whether the new commitments would be higher. It was what the business would own at the end of the arrangement.
The business was already paying rent each month. The difference was that the new structure redirected that cash flow towards owning the $5 million yard, while the plant finance was structured to be paid off over five years.
For business owners who own their equipment outright and are currently renting their premises, it can be worth looking at the full picture before assuming buying is out of reach.
For many business owners, paid-off plant and equipment is simply seen as an asset that has done its job. But if you’re looking to buy the commercial property your business operates from, those assets may form part of the bigger funding picture.
At Ironbark Group, we look at your overall financial position, including your existing property, business assets and lending commitments, to explore what options may be available.
With access to a wide network of lenders and more than 200 years of combined experience across our team, we can help you work through the numbers and understand how different funding structures could fit together.
Own your equipment but still rent your yard? Talk to Ironbark Group about your options today.
Potentially, yes. Depending on the assets you own, their value and your overall financial position, existing plant and equipment may be able to support an asset finance facility that can form part of a broader funding structure. The options available will depend on the type and value of the equipment, how it is currently financed and the lender’s requirements.
In some circumstances, yes. Equipment that is owned outright may be able to be used as security for an asset finance facility. This can provide access to capital without having to sell the equipment or use cash reserves. The amount that can be borrowed will depend on factors including the type, age and value of the equipment and the lender’s assessment.
It may be possible to use equity in existing equipment as part of a broader commercial property funding structure. For example, a business owner may combine a commercial property loan with asset finance secured against existing plant and equipment. The exact structure will depend on the value of the property, the available equity in the equipment, cash flow and lender requirements.
There isn’t one deposit amount that applies to every commercial property purchase. The amount a lender is prepared to finance will depend on factors such as the property, the business, the borrower’s financial position and the lender’s requirements. You also need to consider costs such as stamp duty and other purchase costs. In some circumstances, other assets or available equity may form part of the overall funding structure.
Potentially, yes. Buying the property your business already operates from can provide an alternative to continuing to pay rent, but the numbers need to stack up. The purchase price, available deposit, business cash flow, existing debt and the property’s suitability all need to be considered. Looking at the full financial position can help determine whether purchasing the property is a realistic option.
It can. A commercial property loan creates a new financial commitment, and other funding may also be required to cover the deposit and purchase costs. However, the comparison isn’t simply between rent and loan repayments. It’s also important to consider what the business owns at the end of the arrangement. In some circumstances, the existing rent being paid may be broadly comparable with the proposed property repayments, although the actual numbers will vary between businesses and properties.
