If you are self-employed, you could use the equity in your home as a source of low-cost working capital to invest in your business.
The Perimeter Guidance (PERG) rules in the Financial Conduct Authority Handbook limit lenders’ ability to permit release of equity from a home. There is however an exemption in the rules which means the proceeds from a second charge loan on a borrower’s home can be used for commercial purposes.
The regulations specify the amount borrowed must exceed £25,000 and the funds must be destined for a legitimate business.
The lender will require a clear description of the use of the loan proceeds and would typically expect you to be an existing shareholder of the relevant business or be using the loan to acquire an interest in that business.
The business for which you are borrowing could be a sole trader, partnership or a limited company and it is not required to be profitable. A wide range of purposes are permissible – you may be intending to expand your existing business, to invest in new equipment, or be making an acquisition. Similarly, funds may be used to buy into a partnership or to buy out the shares of other partners.
It is worth noting that, in raising a mortgage loan granted via the business purpose exemption, you will give up ‘consumer’ status in respect of that particular transaction, which means you will not benefit from the same level of regulatory protection. The lender will ask you to sign a declaration which confirms you understand this.
We have a very close working relationship with an institution which specialises in this type of lending. The lender will typically offer the funds on a fixed rate basis and this can be rolled up for payment on redemption of the loan, so there is no requirement to make monthly payments. Rates vary considerably according to the nature of the individual application.
Loans are available from 1 year to 5 years and there is no maximum age. As every case is individually underwritten, the lender can take a flexible approach to income and can also consider loans to expats, foreign nationals and non-doms.
If you are interested in this product, have any questions for our expert brokers about the market or wish to be introduced by Enness to the relevant lender, please do not hesitate to get in touch.