Deposits and costs when buying business premises

The deposit is the slice of the price you fund yourself, with the mortgage covering the rest. For a strong trading business, lenders commonly work to 70% to 80% loan to value, which means a deposit from around 20% to 30% of the purchase price.

Where your business sits in that band depends on the strength of the accounts, the property itself, and the lender. A well-established business buying a standard, easily valued unit may reach the top of the loan to value range, while a more specialist property or a shorter trading history may call for a larger deposit. It is worth getting a realistic read on this early, because it drives every other number in your budget. These bands are indicative and subject to status and valuation.

Beyond the deposit, a cluster of fees fall due as the purchase completes. Budget for each of these:

• Lender arrangement fee: typically 1% to 2% of the loan. It can often be added to the loan, though that means paying interest on it over the term.
• Valuation: the lender will require a valuation of the property, and you usually pay for it. The cost scales with the size and type of building.
• Legal fees: you pay your own solicitor, and on many business mortgages you also cover the lender's legal costs, so budget for both sides.
• Broker or arrangement costs: where these apply, they will be set out clearly and in advance.

None of these is optional dressing. Together they can add a meaningful sum on top of the deposit, so they belong in the budget from day one rather than as an afterthought.

Buying commercial property in England or Northern Ireland brings a stamp duty land tax charge, calculated on the purchase price in bands. Scotland and Wales run their own equivalent taxes with their own thresholds. It is a real cash cost due around completion, and on a larger purchase it can be one of the bigger line items after the deposit.

Because the rates and bands change from time to time and depend on the price and the nature of the property, you should confirm the exact figure with your solicitor or a tax adviser rather than rely on a rule of thumb. The point for budgeting is simply to make sure the charge is in your plan and set aside in cash, because it cannot usually be added to the mortgage.

Some commercial properties come with VAT on the purchase price, because the seller has opted to tax the building. Where that applies, VAT is charged on top of the price, which is a significant extra sum to find at completion even if you can later recover it through your VAT return.

The timing gap between paying the VAT and reclaiming it can strain cash, so there is a short-term funding route sometimes used to bridge that gap until the reclaim comes through. Whether VAT applies, and how the reclaim works for your business, depends on the specific property and your VAT position, so check it early. We cover this in more detail in our guide to VAT on commercial property purchases, and your accountant can confirm your position.

Once you own the building, costs that a landlord used to carry become yours. These are easy to underestimate because they do not show up as a single bill at completion, but they shape the true monthly cost of owning premises:

• Repairs and maintenance: structural upkeep, the roof, services and general wear all sit with you as the owner.
• Buildings insurance: a lender will require the property to be insured, and the premium is an ongoing cost.
• Business rates: payable on most commercial premises, and a regular outgoing to plan for.
• Utilities and compliance: the running costs and safety obligations that come with occupying and maintaining a building.

Setting a little aside each month for repairs is sensible, because building costs tend to arrive in lumps rather than evenly.

The cleanest way to avoid surprises is to write the whole thing down before you commit. A workable budget has three parts: the cash you need at completion, the running costs once you own the building, and a small buffer for the unexpected.

For completion, add up the deposit, the arrangement fee if you are paying it upfront, the valuation, both sets of legal fees, the stamp duty, and any VAT that applies. For the ongoing side, estimate repairs, insurance, rates and utilities across a year. Then keep a reserve on top, because valuations and legal points occasionally shift the numbers. We are happy to help you sketch out these figures for a specific property so you know exactly what you are taking on before you proceed. As a finance arranger and introducer rather than a lender, and not a tax or legal adviser, our role is to help you fund it well, while your solicitor and accountant confirm the tax and legal detail. Nothing here is financial, tax or legal advice.