Refinancing Your Home to Fund Your Business

| March 16, 2020

Refinancing Your Home to Fund Your Business

It can be a risky strategy, but one way to gather capital for your new business is by remortgaging your property in order to release equity. In this article, the real estate specialists at Property Solvers explain how to do this easily and safely.

1. Work out exactly how much you need

The first step towards planning the finance of any business is to get hold of quotes and carefully calculate a realistic income and expenditure projection. Look at rent, bills, tax and insurance, courier fees, fuel, equipment, materials, labour, wages and everything in between.

You should also plan how much you’d need to live on just in case there’s any problem with cash flow in the early days of your business’s life.

A large proportion of small businesses fail within their first five years, so it’s a good idea to develop a strong and realistic idea of what your finances will look like throughout that time to be on the safe side.

It’s important to add a good-sized contingency too, as nasty surprises can rear their head at any time, no matter how well you’ve planned.

2. Discover how much equity is in your home

Now you know how much it will take to get your business off its feet, you need to look in great detail at the amount of equity you’ll be able to release by remortgaging your home.

If you haven’t had the property for long, the chances are that it won’t be a lot. If this is the case, it’s best to wait for a few years to ensure a decent build-up.

We strongly recommend that you are cautious with the amount you release. It’s always risky starting a new business – and if anything goes wrong, you may end up losing your house if you’ve taken too big of a risk.

There are some things you can do to build equity while you wait to refinance. Renovations and redecoration may vastly increase your property’s value. You could even just spruce up its facade and manicure what you can see from the road. “Kerb appeal” has a big impact.

In a good market, the value of your home is likely to increase over time. This means there’s a likelihood of equity building without you having to lift a finger. If you can, wait a while and see how much it goes up.

3. Look for the right mortgage lender

You can absolutely use the lender of your original mortgage to go through the refinancing process. However, you’re also well within your rights to seek out better deals. 

It’s definitely a good idea to try this out, especially if your first mortgage was taken out years ago, as a lot may have changed since then and you may be eligible for better offers.

Remember to always listen closely to the lender’s advice before going through with anything. If you’re concerned about being persuaded into choosing the wrong product, why not seek a second opinion from a mortgage broker?

An important thing to note is that your credit score is likely to affect the interest rates you’ll be required to pay. If you can improve your score, you may be able to get an even better deal.

4. Choose the right time

Be smart and wait until you’re totally prepared before going through with the refinancing process. If you do it too early, you may struggle to keep hold of the money until your business is ready to take off.

Don’t wait too long either. Remember, a typical remortgage takes between four and eight weeks, so make a plan that takes this timescale into account or you may get off on the wrong foot with your new company and its contacts.

5. Play it safe

Remember, you’ll have to wait a while until you can refinance again; usually the length of your existing introductory mortgage period. 

It’s important to be frugal with the equity you’ve released during this time – as you may also require it to support yourself and your family if your business doesn’t take off straight away.

By following all of the above steps, you may be able to successfully fund your new business simply by seeking a new mortgage deal for your property. It’s important to take precautions and be totally honest about how much capital you’ll need to ensure the venture is successful.

Taking risks when releasing equity from your property to fund your business can have negative knock-on effects both on your homeownership and your fledgeling company. In the worst case, you may struggle to keep your professional venture afloat and see your home repossessed.

For further information and advice regarding real estate or home finance, feel free to Google ‘Property Solvers’. Their team will be able to answer any questions you may have.