BUSINESS LOANS
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BUSINESS LOANS
They are two of the biggest things you can do in life – but do buying a home and starting a business go hand-in-hand?
For many new business owners, the prospect of securing a mortgage fills them with dread. Judging by the number of client enquiries I receive many still fear that a freshly-formed business will, in the eyes of lenders’ underwriters, disqualify them from mortgage eligibility.
On the flip side, many would-be business owners are forced to prioritise, preferring to defer their career ambitions, to secure their family home first. Only returning to their business dreams, sometimes years, later.
But the anxiety around the implications of starting a business on your mortgage eligibility doesn’t need to be so thorny.
This doesn’t mean, however, that, when you want to buy a house you can embark on a new business with impunity.
Yes, there are fewer technical hurdles to securing a mortgage but you must nevertheless consider the impact of starting a busines on your underlying finances.
Going into business can come with significant set-up costs, like premises, staffing, and stock, and, at the start, earnings may be slow. These upfront costs can mean an enforced, if temporary, reduction in your own salary and this is something that would reduce your income and would show on the SA302 presented to mortgage lenders.
You want to avoid getting into a situation where you are forced to defend your business plan or attempt to justify first-year set-up costs as one-off as this could cause delays to the whole process.
And, whilst you could happily run your company at a loss in order to draw enough in salary to satisfy your underwriter, you must avoid gaming your company’s tax return just to play the system.
A business mortgage plan differs from a regular mortgage in the following ways:
- There are usually no fixed rates for commercial mortgages
- You’ll usually pay a higher interest rate on commercial mortgages compared to regular home mortgages as these are considered higher-risk to lenders
- Commercial mortgages tend to offer better interest rates than regular business loans as these require property as collateral
The benefits of taking out a commercial mortgage
Here are a few reasons why you might want to think about taking out a commercial mortgage:
- The interest on your commercial mortgage is tax-deductible
- If your property increases in value, your capital could also see an increase
- You’ll be able to rent out the property to generate extra income