Many people remortgage for one of two reasons: they either want to reduce their monthly repayments or pay off their loan sooner. While the latter would offer the small business owner significant benefits in future, the former provides a solid strategy to secure cash for crucial investment right now.
“Houses” by Charles Hutchins (CC BY 2.0)
When is remortgaging a good option for the small business owner?
If you feel it’s time to invest in your business and your current mortgage is coming to the end of its deal, it could be an opportune time to extract cash out of your property to inject into your company. It’s important to start thinking about your options three to six months prior to this.
If you’ve built significant equity in your home and you’ve paid off a large proportion of your original borrowing, remortgaging offers a great opportunity for investment in your SME. Indeed, you can either extract a lump sum or borrow against the equity you’ve accumulated, or divert more personal finances into your business each month due to lower repayments on the new deal.
How to get the best deal?
It’s not necessarily about getting the cheapest deal, rather it’s about getting the one that offers the best value for your circumstances. For those seeking to switch to interest-only mortgages to free-up extra cash each month, brokers like Trussle trawl through thousands of deals from nearly 100 lenders, enabling you to categorise your search query to interest-only options.
If you compare mortgage deals based on your specific financial circumstances, you’re better able to evaluate what terms work for your situation. It’s easy to do this using a service like Trussle – that particular example could show up over 12,000 different deals in one location. But make sure you take into consideration extra fees too such as charges related to solicitors, early repayment and valuations.
Think long term
While remortgaging to release equity to start a small business might be riskier than investing in a currently profitable one, you’ve still got to think about your long-term objectives and weigh up the risks.
Taking out cash you’ve previously built up through your mortgage means you’re adding to your debt. Of course, it’s a simpler option to gain cash and the rates are often cheaper than a business loan but the commitment has to be part of longer-term planning.
You have to have confidence in your business. If the money is still needed to give your business a boost but you’re unsure about longevity in the next few years, an interest-only remortgage would be a better way to free-up much-needed cash on a monthly basis without risking the equity in your home.
“Mortgage Cloud” by GotCredit (CC BY 2.0)
What are my other options?
Remortgaging isn’t the only option for small business owners wanting to invest. If you have savings, consider the potential interest on new borrowing over the interest currently earned on savings.
It’s also important to consider the potential financial rewards of developing your business with a cash injection; the risk-reward between leaving savings slowly accumulating interest against growing profits as a result of your business’s possible success.
Other options rather than remortgaging include private borrowing (from family, friends or business acquaintances), business credit cards, raising capital through the sale of assets, and a personal or unsecured loan.
Remortgaging is one of the ways to free cash for small business investment. Research the options available to you and take into consideration short and long-term goals. While there are other borrowing options – and depending on your circumstances alternatives such as a personal loan or downsizing may be more suitable – remortgaging offers a number of advantages to business owners eager to enhance, improve and grow their companies.