Raise business funds with your residential property

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Are you looking to raise funds for your business? Your residential property could be the key. Whether you are in the start-up phase or an established company, your home could be used to finance any aspect of your business.

Refinancing is a business funding option that takes advantage of the capital in the value of your personal property. Broadly, refinancing come in three different forms: remortgaging, second charge lending and releasing equity.

The main benefit of this type of finance is that you can use an existing asset (your home) to fund your business ventures, this can be of benefit to business owners who are unable to raise finance via traditional means such as a business loan, but have funds tied up in a property that can be used.

As with all types of alternative business funding options, there are advantages and disadvantages of refinancing your residential property that should be considered:

Advantages of Refinancing

  • Funds raised via refinancing can be used for any business purpose, be it expansion, refurbishment, hiring new staff, buying new stock or even setting up a new business.
  • With the market becoming more and more competitive, mortgage lenders are constantly improving their offers and reducing rates to attract new business.
  • If your home has increased in value since you first took out your mortgage, the amount you can borrow will be based on this rather than what you paid for it.

Disadvantages of Refinancing

  • Like all forms of funding, failure to keep up with your repayments could put your collateral at risk – in this case, the collateral being your home.
  • The amount you can raise through refinancing will be dependent on the value of your property, the amount of any existing mortgage, your age, your ability to repay any increased repayments and a number of other factors.
  • When utilising refinancing, the equity that was once in your property becomes tied up in your business, so if you moved into a larger property it would not have as much equity.

What Is Refinancing?

There are a number of different methods of refinancing your residential property, all of which centre around utilising the value of your property to raise funds. Unlike other forms of business funding, you won’t need any upfront cash or business assets to secure the loan.

How Does It Work?

Refinancing can work in a number of different ways dependant on which method best suits your individual circumstances, the three main methods of refinancing are:

  • Remortgaging – Remortgaging is the process of arranging a new mortgage deal in order to improve repayment terms or raise a cash lump sum from the equity in your home. Given the competitive mortgage rates currently available, remortgaging can be an extremely cost-effective form of raising funds for business purposes.
  • Releasing Equity – Equity is the share you own of the value of your home. The most popular type of equity release is a lifetime mortgage; this involves borrowing a lump sum against the value of your home. Unlike a regular loan, there are no monthly repayments, interest will instead be added to the value of the loan yearly until the property is sold or the owner passes away.
  • Second Charge Mortgage – A second charge loan is an additional, secured loan that can be taken out on top of the main mortgage on a property in order to raise funds. This is then paid back in monthly amounts just like a regular mortgage. This can be a cost-effective alternative to remortgaging if you’re looking to switch providers but are faced with a high early repayment charge.

What’s the Process for Funding?

The process for securing funding from refinancing starts with applying through a mortgage broker or equity release specialist, this doesn’t have to be your existing provider. Following a successful application, the lender will deposit the money as a lump sum into your bank account.

At Business Funding Shop, we’ll help you make the best decision based on your requirements and individual circumstances.

Refinancing FAQs

No, there will be no deposit to pay when utilising this form of business funding.

This will depend on the value of your property, how much you want to borrow, how much you owe on your current mortgage and how much the broker calculates you can afford to borrow.

In order to release equity from your home, you will need to be at least 55 years old. However, there are no age limits for applying for a remortgage or second charge mortgage.

If you have taken out a second charge mortgage and decide to sell your home, the money from the sale will go towards paying off your first mortgage before going towards your second mortgage.

This will depend on the lender, however, usually repayment terms on a second charge mortgage can be anywhere from five to thirty years.

Yes, in most cases lenders will check your credit rating in order to assess your affordability and how much they can lend you. If you have a bad credit rating, a second charge mortgage may be a better solution compared to remortgaging, call us first for advice on 0800 047 2389.

Use Your Home to Finance Your Business 

If you own a residential property and are looking to raise funds for your business, refinancing could help. At Business Funding Shop, we work with a trusted panel of mortgage brokers to get you the best deal when releasing equity, remortgaging or taking out a second mortgage.

To find out more about refinancing your property, give one of our team a call today on 0800 047 2389 or fill out a contact form below and we’ll get back to you.