How the loan works
The borrowing is secured on your residential property as a second charge behind your mortgage. The lender assesses your personal income and outgoings, your credit history and the equity in the home. If you are self-employed, expect to provide accounts, tax calculations and bank statements.
Lenders will ask what the money is for. Be specific about the amount and the purpose.
The regulatory position
Most secured loans on a home are regulated mortgage contracts with the protections that follow, including an advised recommendation, a personalised illustration and a reflection period after the offer. Where a loan is wholly or predominantly for business purposes, the position can differ and some protections may not apply.
Ask the broker how your agreement would be regulated and what that means for you before you proceed. Habitat Loans does not give advice; Loans Warehouse, the broker, will explain the position for your case.
Weighing the risk
Consider what happens to the repayments if the business has a poor year. Lenders assess affordability on your household position, but the decision to put your home behind a business is yours.
Compare the secured loan with business finance that does not involve your home, such as an unsecured business loan, asset finance for equipment or an overdraft. Costs, terms and personal guarantees differ; get each in writing.
Costs to compare
Ask for the total amount repayable over the term, the fees and any early repayment charge. If the business could repay the loan early from profits, the charge for doing so matters.
Think carefully before securing other debts against your home.
Before you commit
- Confirm how the loan would be regulated and what protections apply.
- Compare business finance options that do not use your home as security.
- Check that the household could meet the repayments without the business.
- Take advice from your accountant on the tax treatment of the interest.