How to use your houses’ second mortgage to buy a business

Purchasing a business or starting a new one is a big and sometimes daunting step to take. Finding the funds to do so is one of the biggest challenges, and many individuals consider remortgaging their home to secure the necessary capital.


This is an inherently risky decision to make that could potentially impact on one’s personal life and is therefore not one to be taken lightly. That said, finding the significant levels of funding required to either start a new business or purchase an existing one can be exceptionally difficult. The recent financial crisis has made this even harder and, in the current economic environment, it can be very difficult to secure a business start-up loan.


Taking all this into account, provided all aspects are thought through and the right preparations are made in order to mitigate risks, seeking a second mortgage on a home in order to raise the funds can actually be the best course of action to take.


The benefits


Recent research has suggested that as many as one in five small business owners have had to sell or remortgage their own home in order to gain enough capital to set up their company. This seems like a dramatic thing to do, but the benefits are potentially huge.


Perhaps the biggest advantage is the independence this route offers, compared to a reliance on third party investors. What this means in the long term is that profits will not need to be shared in the same way if the business is successful.


However, even more significant than this is the simple fact that unlocking such capital provides the means to make dreams a reality. Combined with expertise, this is a winning formula.


The risks and how to manage them


The implications of remortgaging are significant, both financially and personally, and especially if the property in question is a family home.


The best way to avoid such risks and protect yourself against them is to ensure that the arrangements made are right for you. There is a range of remortgage deals on the market and anyone looking to secure one of these should consider the following:


  • How much do you need? Devise a detailed outline of the funding that is required, and why, to avoid unnecessary risk and present yourself in the most professional way.


  • How much can you afford? It is critical to answer this question honestly and realistically so as not to over-stretch yourself.


  • Do you understand all elements of the product on offer? This is such an important area that the answer to this question must be nothing other than an unequivocal “yes.”


A big decision


The decision to remortgage a property, and particularly a home, is not one to be taken without proper consideration of all the issues. From a financial point of view, the sums involved can be intimidatingly large, while the personal element of the risks involved can also be off-putting.


However, by planning carefully and getting the right advice, it is possible to protect oneself against the risks as far as possible and, as a result, unlock the funds required to help achieve your ambitions.