Why Burden Yourself With Business Loans When You Could Remortgage To Start Up Your Own Business
Starting up your own business isn’t easy. As well as finding premises and staff, you will also have to raise the capital needed to fund the set-up costs for your new company. Whilst you may be able to obtain the funding you need from a bank, many people also raise the funds needed for their new business venture by utilizing the equity they have in their property.
Overtime, it is likely that you will have built up equity in your property. Your equity is the difference between the mortgage that is secured on your home and the market value of your property. You are particularly likely to have a decent amount of equity if you have paid your mortgage for a number of years or you have been in your home for a long time.
Many people use a remortgage to improve their existing property by adding a new kitchen, updating the décor, adding a conservatory or building an extension. Others use the funds to pay for cars or other assets, such as additional properties.
For example, you may want to open a café or coffee shop and the perfect premises have become available. However, you may be struggling as you can’t get a loan cheaply enough to afford the repayments or large enough to buy the property that you need.
A remortgage is therefore an alternative way of raising the cash that you need. There are two main criteria for obtaining a remortgage on your home. Firstly, a lender will consider your credit history and the repayment record of your mortgage and other debts. Secondly, they will consider the amount of equity in your home. Most lenders will restrict their lending based on your equity as if you are unable to repay your mortgage they will want to ensure that they are in a position where they can recoup all of their money; even if the value of your property has fallen.
As your home is at risk if you don’t keep up repayments on your mortgage and additional borrowing, it is vital that you are sure that your business is viable and has a good chance of success. If you don’t, you could put you and your family’s security in jeopardy.
It is never advisable to start a business venture unless you have enough money behind you to pay for 6 months outgoings without any income. If this is not possible, you may need another income source as security for the first few months.
Secondly, if the business is successful, will you simply be working to service the new debt? You may end up in a situation where you work hard to make your business a success simply to generate enough income to service the additional debt you have taken on. It is vital that your business grows and so the debt becomes proportionately smaller when compared to the turnover or profit that your company is generating.
It is very important if you remortgage to fund your business that you do not take any big risks, and that you keep your costing to a minimum while you set up and get the business off the ground to avoid the chance of losing your home. All people in the property should also be aware of what you are doing.
One of the best pieces of advice is to get advice from a business professional, as they will be able to assist you with finding any potential pitfalls in your business plan and to work around them so that you are taking on less risk. They may point out areas that you’d not thought about, so this can be extremely valuable to you, your business and your family.
Timothy Frodsham writes for JustRemortgages.com one of the UK’s top sites for the latest remortgage rates and best remortgage deals.