Nicola Ferguson, Bridging and Commercial Specialist, Clever Lending
One of the main challenges of setting up or running a new business is the costs associated with getting it off the ground. It can often be difficult for new business owners to secure funding, particularly if they have little or limited accounts history and this can often stop any plans to grow a business in its tracks.
The Growing Need for Financing New Businesses
Despite this, one in three UK adults planned to start a new business by 2024, according to the 2021 Global Entrepreneurship Monitor (GEM) UK report, seemingly undeterred by the effects of the 2020 global pandemic and ongoing uncertainty and volatility in the economy.
Supporting the growth of small business is essential for economic stability as it helps to foster innovation and encourage future entrepreneurship and continued business growth. However, with access to funding sometimes challenging and the needs of every business vastly different, brokers need to ensure they are aware of all the financing solutions available to those clients looking to capital raise, particularly those just starting out.
Exploring Homeowner Business Loans
For example, a homeowner business loan can prove to be an excellent borrowing tool for those clients at the start of their new business journey or even existing business owners in need of a cash injection. Yet despite being an extremely useful way of capital raising, homeowner business loans remain a relatively unfamiliar and niche area of the specialist lending market.
Lenders in the Market Offering Homeowner Business Loans
There are not many lenders in the market offering a homeowner business loan, but Mercantile Trust and Together are two lenders that do. With few lenders offering this, it could mean brokers may not be aware of what they offer.
Maeve Ward, Director of Commercial Operations at Mercantile Trust said:
“Our relationship with Clever Lending has been built up over many years, and we have had the pleasure in working with the team more closely since the launch of the product.
“What’s great is that the product allows the client to access funds much more quickly than a second charge mortgage would allow, an advantage when the borrower’s portfolio might not have the required equity or they are faced with the challenge of the first mortgagee not consenting.”
Joanna Elton, Intermediary Relationship Manager – Midlands at Together said:
“For customers who are in need of funds to contribute towards their business, homeowner business loans can be an excellent option. Considering their value to both new and existing businesses, they should be on the radar of all brokers so they can best advise and educate their customers.
“There are currently few lenders in the specialist lending sector who actually provide these loans – and we have built up long-standing working relationship with Clever Lending. Together, we have been able to provide a number of these loans to our customers to help them achieve their property ambitions.”
Considerations for Using Homeowner Business Loans
As highlighted by both Joanna and Maeve, this product can be an important one for brokers to have access to as they provide small business owners, start-ups and entrepreneurs a way of accessing finance by allowing them to release equity from their main residence for business purposes. This can prove particularly useful in the early days if a business has no bricks and mortar to borrow against and needs a cash injection to buy equipment, purchase stock or even secure new premises. In some cases, a homeowner business loan can also be used to pay off outstanding business debt such as a tax bill.
Provided the client is a homeowner with a first charge mortgage, they can take out a homeowner business loan on their residential property up to 75% loan to value, and use the money to set up or help develop their business further. The loan will run alongside, but separate to, the first charge mortgage and will have its own rate, terms and repayment agreement.
A homeowner business loan can also prove to be particularly useful in cases where a property investor may not have enough equity in their property portfolio, as it enables them to use the equity within their own home for business reasons while also keeping their portfolio untouched and protecting the preferential rate on their first charge mortgage.
As the name suggests, a homeowner business loan can only be used for business purposes, so it important the client is made aware of the fact that they are releasing equity from their main home to fund a business transaction and that the money cannot be used for any other reason. They will also need a clear and achievable exit strategy explaining how the loan will be repaid.
Obviously, a homeowner business loan will not be a suitable option for every client, and it is up to brokers to determine whether this type of financing solution suits the individual needs of their business customers. However, as with all aspects of the specialist financing market, understanding this niche product area and being aware of all the options available in the market, will ensure they are fully equipped to serve the individual needs of each of their clients.