Home Business Insights & Advice Can you fund a new business using equity release? Four important things to consider

Can you fund a new business using equity release? Four important things to consider

by John Saunders
16th Feb 22 5:38 pm

There are lots of ways to fund a business, from traditional loans to private investments to your own savings.

Equity release is an intriguing alternative option which could be right in certain situations. But before you move forward, here are a few things you need to think about.

Equity release lets you release cash tied up in your home

The main purpose of equity release is to help out people whose most valuable asset is their home, and who may have significant sums locked up in property that they cannot easily access without dramatically changing their living arrangements.

A loan of this kind lets you borrow against the value of your property without having to sell up and move elsewhere. And of course the money you receive as part of the deal can be spent however you wish, including to fund a new business venture.

Of course this is not the typical use case of equity release; most customers leverage it to fund their retired lifestyle, plugging any gap in their pension and savings so that they can avoid money worries when they leave work.

Even so, because of the freedom afforded by most equity release arrangements, you could harness the cash to catalyze whatever commercial endeavours you have planned.

Eligibility requirement must be met

You don’t have to be retired to take advantage of equity release, but you will need to be aged 55 or older.

Some lenders will not accept customers who still have a mortgage left on their property, although this is not always a necessity. You could release equity so long as this loan pays off your remaining mortgage.

Getting a financial adviser to review your finances and give you guidance as to whether you are likely to be approved for equity release is sensible. A qualified professional in this field will also advise you as to whether equity release is the right way to fund a new business.

Inheritance is impacted

Equity release products are usually referred to as lifetime mortgages. This of course means that they are only repaid when the owners of the property pass away, or once they are moved into long-term care facilities.

Interest builds up on the loaned amount, but you don’t need to make any repayments until the house is sold.

This of course reduces the size of your estate, so those who stand to inherit may be impacted. Regulation preventing you going into negative equity does shield your beneficiaries from inheriting debt, at least.

Other home equity loans are available

As mentioned, equity release products are typically targeted at retirees who are finished with the world of work and want to enjoy their twilight years to the fullest. As such, funding a business with this specific type of equity release loan is not usual.

However, there are other forms of home equity loan that may or may not be suitable for people who are either ineligible for equity release due to age, or don’t want to necessarily reduce the size of their inheritable estate.

A standard home equity loan will likely not stretch to the same scope as an equity release arrangement, and could have a shorter repayment period applicable to it, as well as higher interest rates to take into account.

If you are under 55 and a homeowner, it could still be a suitable route for funding your business, so long as you are prepared for the risks involved and have exhausted the other options for loans and investments which are out there.

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